Last checked at 28 Jul 2023 07:00
Standard Chartered PLC - Half Year Results 2023 - Part 2
Table of content
Risk review | 2 |
Capital review | 55 |
Financial statements | 62 |
Other supplementary information | 121 |
Glossary | 135 |
Page 1
Risk review and Capital review
Risk Index | |
Risk profile | Credit Risk |
Basis of preparation | |
Credit Risk overview | |
Impairment model | |
Staging of financial instruments | |
IFRS 9 expected credit loss principles and approaches | |
Maximum exposure to credit Risk | |
Analysis of financial instrument by stage | |
Credit quality analysis | |
• Credit quality by client segment | |
• Credit quality by geographic region | |
Movement in gross exposures and credit impairment for loans and advances, debt securities, undrawn commitments and financial guarantees | |
Movement of debt securities, alternative tier one and other eligible bills | |
Analysis of Stage 2 balances | |
Credit impairment charge | |
Problem credit management and provisioning | |
• Forborne and other modified loans by client segment | |
• Forborne and other modified loans by region | |
• Credit-impaired (stage 3) loans and advances by client segment | |
• Credit-impaired (stage 3) loans and advances by geographic region | |
Credit Risk mitigation | |
• Collateral | |
• Collateral held on loans and advances | |
• Collateral - Corporate, Commercial & Institutional Banking | |
• Collateral - Consumer, Private & Business Banking | |
• Mortgage loan-to-value ratios by geography | |
• Collateral and other credit enhancements possessed or called upon | |
• Other Credit Risk mitigation | |
Other portfolio analysis | |
• Credit quality by industry | |
• Industry analysis of loans and advances by geographic region | |
• Vulnerable and Cyclical sector tables | |
• China commercial real estate | |
• Debt securities and other eligible bills | |
IFRS 9 expected credit loss methodology | |
Traded Risk | |
Market Risk | |
Counterparty Credit Risk | |
Derivative financial instruments Credit Risk mitigation | |
Liquidity and Funding risk | |
Liquidity & Funding Risk metrics | |
Liquidity analysis of the Group's balance sheet | |
Interest Rate Risk in the Banking Book | |
Operational and Technology Risk | |
Operational and Technology Risk profile | |
Other principal risks | |
Capital | Capital summary |
• Capital ratio | |
• Capital base | |
• Movement in total capital | |
Risk-weighted asset | |
Leverage ratio |
Page 2
The following parts of the Risk review and Capital review form part of these condensed interim financial statements and are reviewed by the external auditors:
a) Risk review: Disclosures marked as 'reviewed' from the start of Credit risk section to the end of other principal risks in the same section; and
b) Capital review: Tables marked as 'reviewed' from the start of 'CRD Capital base' to the end of 'Movement in total capital', excluding 'Total risk-weighted assets'.
Page 3
Risk review
Credit Risk (reviewed)
Basis of preparation
Unless otherwise stated the balance sheet and income statement information presented within this section is based on the Group's management view. This is principally the location from which a client relationship is managed, which may differ from where it is financially booked and may be shared between businesses and/or regions. This view reflects how the client segments and regions are managed internally.
Loans and advances to customers and banks held at amortised cost in this Risk profile section include reverse repurchase agreement balances held at amortised cost, per Note 16 Reverse repurchase and repurchase agreements including other similar secured lending and borrowing.
Credit Risk overview
Credit Risk is the potential for loss due to the failure of a counterparty to meet its contractual obligations to pay the Group. Credit exposures arise from both the banking and trading books.
Impairment model
IFRS 9 mandates an impairment model that requires the recognition of expected credit losses (ECL) on all financial debt instruments held at amortised cost, Fair Value through Other Comprehensive Income (FVOCI), undrawn loan commitments and financial guarantees.
Staging of financial instruments
Financial instruments that are not already credit-impaired are originated into stage 1 and a 12-month expected credit loss provision is recognised.
Instruments will remain in stage 1 until they are repaid, unless they experience significant credit deterioration (stage 2) or they become credit-impaired (stage 3).
Instruments will transfer to stage 2 and a lifetime expected credit loss provision is recognised when there has been a significant change in the Credit Risk compared to what was expected at origination.
The framework used to determine a significant increase in Credit Risk is set out below.
Stage 1
• 12-month ECL
• Performing
Stage 2
• Lifetime expected credit loss
• Performing but has exhibited significant increase in Credit Risk (SICR)
Stage 3
• Credit-impaired
• Non-performing
Page 4
IFRS 9 expected credit loss principles and approaches
The main methodology principles and approach adopted by the Group are set out in the following table.
Title | Description | Supplementary Information |
Approach for determining expected credit losses | For material loan portfolios, the Group has adopted a statistical modelling approach for determining expected credit losses that makes extensive use of credit modelling. These models leveraged existing advanced internal ratings based (IRB) models, where these were available. Where model performance breaches model monitoring thresholds or validation standards, a post model adjustment may be required to correct for identified model issues, which will be removed once those issues have been remedied. | IFRS 9 expected credit loss methodology Determining lifetime expected credit loss for revolving products Post-model adjustments |
Incorporation of forward-looking information | The determination of expected credit loss includes various assumptions and judgements in respect of forward-looking macroeconomic information. Refer to for incorporation of forward-looking information, forecast of key macroeconomic variables underlying the expected credit loss calculation and the impact on non-linearity and sensitivity of expected credit loss calculation to macroeconomic variables. Judgemental adjustments, including management overlays may also be used to capture risks not identified in the models. | Incorporation of forward-looking information Forecast of key macroeconomic variables underlying the expected credit loss calculation and the impact of non-linearity Judgemental adjustments and sensitivity to macroeconomic variables |
Significant increase in Credit Risk (SICR) | Expected credit loss for financial assets will transfer from a 12-month basis (stage 1) to a lifetime basis (stage 2) when there is a significant increase in Credit Risk (SICR) relative to that which was expected at the time of origination, or when the asset becomes credit-impaired. On transfer to a lifetime basis, the expected credit loss for those assets will reflect the impact of a default event expected to occur over the remaining lifetime of the instrument rather than just over the 12 months from the reporting date. SICR is assessed by comparing the risk of default of an exposure at the reporting date with the risk of default at origination (after considering the passage of time). 'Significant' does not mean statistically significant nor is it reflective of the extent of the impact on the Group's financial statements. Whether a change in the risk of default is significant or not is assessed using quantitative and qualitative criteria, the weight of which will depend on the type of product and counterparty. | |
Assessment of credit-impaired financial assets | Credit-impaired (stage 3) financial assets comprise those assets that have experienced an observed credit event and are in default. Default represents those assets that are at least 90 days past due in respect of principal and interest payments and/or where the assets are otherwise considered unlikely to pay. This definition is consistent with internal Credit Risk management and the regulatory definition of default. Unlikely to pay factors include objective conditions such as bankruptcy, debt restructuring, fraud or death. It also includes credit-related modifications of contractual cashflows due to significant financial difficulty (forbearance) where the Group has granted concessions that it would not ordinarily consider. Interest income for stage 3 assets is recognised by applying the original effective interest rate to the net asset amount (that is, net of credit impairment provisions). When financial assets are transferred from stage 3 to stage 2, any contractual interest recovered in excess of the interest income recognised while the asset was in stage 3 is reported within the credit impairment line. | |
Transfers between stages | Assets will transfer from stage 3 to stage 2 when they are no longer considered to be credit-impaired. Assets will not be considered credit-impaired only if the customer makes payments such that the obligations are current in line with the original contractual terms. Assets may transfer to stage 1 if they are no longer considered to have experienced a significant increase in credit risk. This will be immediate when the original probability of default based transfer criteria are no longer met (and as long as none of the other transfer criteria apply). Where assets were transferred using other measures, the assets will only transfer back to stage 1 when the condition that caused the significant increase in Credit Risk no longer applies (and as long as none of the other transfer criteria apply). | Movement in loan exposures and expected credit losses |
Page 5
Title | Description | Supplementary Information |
Modified financial assets | Where the contractual terms of a financial instrument have been modified, and this does not result in the instrument being derecognised, a modification gain or loss is recognised in the income statement representing the difference between the original cashflows and the modified cashflows, discounted at the effective interest rate. The modification gain/loss is directly applied to the gross carrying amount of the instrument. If the modification is credit related, such as forbearance or where the Group has granted concessions that it would not ordinarily consider, then it will be considered credit-impaired. Modifications that are not credit related will be subject to an assessment of whether the asset's Credit Risk has increased significantly since origination by comparing the remaining lifetime PD based on the modified terms with the remaining lifetime PD based on the original contractual terms. | Forbearance and other modified loans |
Governance and application of expert credit judgement in respect of expected credit losses | The models used in determining ECL are reviewed and approved by the Group Credit Model Assessment Committee and have been validated by Group model validation, which is independent of the business. A quarterly model monitoring process is in place that uses recent data to compare the differences between model predictions and actual outcomes against approved thresholds. Where a model's performance breaches the monitoring thresholds then an assessment of whether an ECL adjustment is required to correct for the identified model issue is completed. The determination of expected credit losses requires a significant degree of management judgement which had an impact on governance processes, with the output of the expected credit models assessed by the IFRS 9 Impairment Committee. |
Maximum exposure to Credit Risk (reviewed)
The table below presents the Group's maximum exposure to Credit Risk for its on-balance sheet and off-balance sheet financial instruments as at 30 June 2023, before and after taking into account any collateral held or other Credit Risk mitigation.
The Group's on-balance sheet maximum exposure to Credit Risk increased by $22 billion to $811 billion (31 December 2022: $790 billion).
Loans and advances to customers decreased by $20.5 billion to $290 billion (31 December 2022: $311 billion) largely due to a reduction in reverse repos, which decreased by $13.5 billion to $11 billion (31 December 2022: $24 billion). This was offset by a $10.3 billion increase in reverse repos in the fair value book to $75 billion (31 December 2022: $64 billion).
Excluding reverse repos, customer loans reduced by $7 billion to $279 billion (31 December 2022: $286 billion). Consumer, Private and Business Banking (CPBB) reduced by $4 billion to $128 billion (31 December 2022: $132 billion) which was driven by Mortgages. CCIB and Central and other items loans and advances to customers decreased by $16.8 billion to $166 billion (31 December 2022: $183 billion).
Loans to banks increased by $5 billion to $45 billion (31 December 2022: $40 billion) and there was a $0.3 billion increase in Ventures to $1 billion (31 December 2022: $0.7 billion) from portfolio growth in Mox Bank and Trust Bank Singapore.
Cash at Central bank increased by $28 billion to $86 billion (31 December 2022: $58 billion) largely due to overnight deposits with the US Federal Reserve.
Derivative exposures reduced by $3.3 billion to $60 billion (31 December 2022: $64 billion) and investment debt securities decreased by $10.4 billion to $161 billion (31 December 2022: $172 billion).
Off-balance sheet instruments increased by $13.5 billion to $243 billion (31 December 2022: $229 billion), driven by higher levels of financial guarantees.
Page 6
30.06.23 | 31.12.22 | |||||||
Maximum exposure$million | Credit risk management | Net exposure$million | Maximum exposure$million | Credit risk management | Net exposure$million | |||
Collateral8$million | Master netting agreements$million | Collateral8$million | Master netting agreements$million | |||||
On-balance sheet | ||||||||
Cash and balances at central banks | 86,339 | 86,339 | 58,263 | 58,263 | ||||
Loans and advances to banks¹ | 44,602 | 1,383 | 43,219 | 39,519 | 978 | 38,541 | ||
of which - reverse repurchase agreements and other similar secured lending7 | 1,383 | 1,383 | - | 978 | 978 | - | ||
Loans and advances to customers1 | 290,137 | 117,014 | 173,123 | 310,647 | 135,194 | 175,453 | ||
of which - reverse repurchase agreements and other similar secured lending7 | 10,950 | 10,950 | - | 24,498 | 24,498 | - | ||
Investment securities - Debt securities and other eligible bills2 | 161,254 | 161,254 | 171,640 | 171,640 | ||||
Fair value through profit or loss3, 7 | 117,959 | 74,785 | - | 43,174 | 102,575 | 64,491 | - | 38,084 |
Loans and advances to banks | 2,126 | 2,126 | 976 | 976 | ||||
Loans and advances to customers | 5,368 | 5,368 | 6,546 | 6,546 | ||||
Reverse repurchase agreements and other similar lending7 | 74,785 | 74,785 | - | 64,491 | 64,491 | - | ||
Investment securities - Debt securities and other eligible bills2 | 35,680 | 35,680 | 30,562 | 30,562 | ||||
Derivative financial instruments4, 7 | 60,388 | 9,126 | 48,168 | 3,094 | 63,717 | 9,206 | 50,133 | 4,378 |
Accrued income | 2,895 | 2,895 | 2,706 | 2,706 | ||||
Assets held for sale9 | 2,444 | 2,444 | 1,388 | 1,388 | ||||
Other assets5 | 45,367 | 45,367 | 39,295 | 39,295 | ||||
Total balance sheet | 811,385 | 202,308 | 48,168 | 560,909 | 789,750 | 209,869 | 50,133 | 529,748 |
Off-balance sheet6 | ||||||||
Undrawn Commitments | 174,209 | 3,360 | 170,849 | 168,668 | 2,951 | 165,717 | ||
Financial Guarantees and other equivalents | 68,403 | 2,388 | 66,015 | 60,410 | 2,592 | 57,818 | ||
Total off-balance sheet | 242,612 | 5,748 | - | 236,864 | 229,078 | 5,543 | - | 223,535 |
Total | 1,053,997 | 208,056 | 48,168 | 797,773 | 1,018,828 | 215,412 | 50,133 | 753,283 |
1 An analysis of credit quality is set out in the credit quality analysis section. Further details of collateral held by client segment and stage are set out in the collateral analysis section
2 Excludes equity and other investments of $825 million (31 December 2022: $808 million). Further details are set out in Note 13 Financial instruments
3 Excludes equity and other investments of $2,879 million (31 December 2022: $3,230 million). Further details are set out in Note 13 Financial instruments
4 The Group enters into master netting agreements, which in the event of default result in a single amount owed by or to the counterparty through netting the sum of the positive and negative mark-to-market values of applicable derivative transactions
5 Other assets include Hong Kong certificates of indebtedness, cash collateral, and acceptances, in addition to unsettled trades and other financial assets
6 Excludes ECL allowances which are reported under Provisions for liabilities and charges
7 Collateral capped at maximum exposure (over-collateralised)
8 Adjusted for over-collateralisation, which has been determined with reference to the drawn and undrawn component as this best reflects the effect on the amount arising from expected credit losses
9 The amount is after ECL. Further details are set out in Note 20 Assets held for sale and associated liabilities
Analysis of financial instrument by stage (reviewed)
The financial instruments held increased by $23 billion to $881 billion (31 December 2022: $858 billion).
Total stage 1 balances increased by $29.2 billion to $850 billion (31 December 2022: $821 billion), of which $28 billion was Cash with central banks, $15.8 billion was undrawn commitments and financial guarantees. This was offset by a $17.5 billion reduction in loans and advances to customers, primarily due to reduced levels of reverse repos. Debt securities decreased by $9.3 billion to $157 billion (31 December 2022: $166 billion).
Stage 2 financial instruments reduced by $6 billion to $22 billion (31 December 2022: $28 billion) due to reductions in CCIB exposures.
Stage 3 loans and advances to customers decreased by $0.3 billion to $8.9 billion (31 December 2022: $9.3 billion) mainly due to CCIB.
Page 7
30.06.23 | ||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | |||||||||
Gross balance1$million | Total credit impairment$million | Net carrying value$million | Gross balance¹$million | Total credit impairment$million | Net carrying value$million | Gross balance¹$million | Total credit impairment$million | Net carrying value$million | Gross balance¹$million | Total credit impairment$million | Net carrying value$million | |
Cash and balances at central banks | 85,611 | - | 85,611 | 451 | (8) | 443 | 301 | (16) | 285 | 86,363 | (24) | 86,339 |
Loans and advances to banks (amortised cost) | 43,980 | (6) | 43,974 | 565 | (12) | 553 | 78 | (3) | 75 | 44,623 | (21) | 44,602 |
Loans and advances to customers (amortised cost) | 277,711 | (451) | 277,260 | 10,110 | (400) | 9,710 | 7,687 | (4,520) | 3,167 | 295,508 | (5,371) | 290,137 |
Debt securities and other eligible bills5 | 156,760 | (35) | 4,400 | (39) | 168 | (53) | 161,328 | (127) | ||||
Amortised cost | 58,253 | (21) | 58,232 | 115 | - | 115 | 94 | (53) | 41 | 58,462 | (74) | 58,388 |
FVOCI2 | 98,507 | (14) | 4,285 | (39) | 74 | - | 102,866 | (53) | - | |||
Accrued income (amortised cost)4 | 2,895 | 2,895 | - | - | 2,895 | - | 2,895 | |||||
Assets held for sale | 2,302 | - | 2,302 | 120 | (2) | 118 | 85 | (61) | 24 | 2,507 | (63) | 2,444 |
Other assets | 45,369 | (3) | 45,366 | - | - | - | 4 | (3) | 1 | 45,373 | (6) | 45,367 |
Undrawn commitments3 | 169,843 | (45) | 4,363 | (43) | 3 | (1) | 174,209 | (89) | ||||
Financial guarantees, trade credits and irrevocable letterof credits3 | 65,574 | (13) | 2,238 | (20) | 591 | (120) | 68,403 | (153) | ||||
Total | 850,045 | (553) | 22,247 | (524) | 8,917 | (4,777) | 881,209 | (5,854) | ||||
1 Gross carrying amount for off-balance sheet refers to notional values
2 These instruments are held at fair value on the balance sheet. The ECL provision in respect of debt securities measured at FVOCI is held within the OCI reserve
3 These are off-balance sheet instruments. Only the ECL is recorded on-balance sheet as a financial liability and therefore there is no "net carrying amount". ECL allowances on off-balance sheet instruments are held as liability provisions to the extent that the drawn and undrawn components of loan exposures can be separately identified. Otherwise they will be reported against the drawn component
4 Stage 1 ECL is not material
5 Stage 3 gross includes $100 million (2022: $28 million) originated credit-impaired debt securities with impairment of $14 million (2022: $13 million)
Page 8
31.12.22 | ||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | |||||||||
Gross balance1$million | Total credit impairment$million | Net carrying value$million | Gross balance1$million | Total credit impairment$million | Net carrying value$million | Gross balance1$million | Total credit impairment$million | Net carrying value$million | Gross balance1$million | Total credit impairment$million | Net carrying value$million | |
Cash and balances at central banks | 57,643 | - | 57,643 | 333 | (8) | 325 | 295 | - | 295 | 58,271 | (8) | 58,263 |
Loans and advances to banks (amortised cost) | 39,149 | (9) | 39,140 | 337 | (3) | 334 | 59 | (14) | 45 | 39,545 | (26) | 39,519 |
Loans and advances to customers (amortised cost) | 295,219 | (559) | 294,660 | 13,043 | (444) | 12,599 | 7,845 | (4,457) | 3,388 | 316,107 | (5,460) | 310,647 |
Debt securities and other eligible bills5 | 166,103 | (25) | 5,455 | (90) | 144 | (106) | 171,702 | (221) | ||||
Amortised cost | 59,427 | (9) | 59,418 | 271 | (2) | 269 | 78 | (51) | 27 | 59,776 | (62) | 59,714 |
FVOCI2 | 106,676 | (16) | 5,184 | (88) | 66 | (55) | 111,926 | (159) | ||||
Accrued income (amortised cost)4 | 2,706 | 2,706 | - | - | 2,706 | - | 2,706 | |||||
Assets held for sale4 | 1,083 | (6) | 1,077 | 262 | (4) | 258 | 120 | (67) | 53 | 1,465 | (77) | 1,388 |
Other assets | 39,294 | - | 39,294 | - | - | - | 4 | (3) | 1 | 39,298 | (3) | 39,295 |
Undrawn commitments3 | 162,958 | (41) | 5,582 | (53) | 128 | - | 168,668 | (94) | ||||
Financial guarantees, trade credits and irrevocable letter of credits3 | 56,683 | (11) | 3,062 | (28) | 665 | (147) | 60,410 | (186) | ||||
Total | 820,838 | (651) | 28,074 | (630) | 9,260 | (4,794) | 858,172 | (6,075) | ||||
1 Gross carrying amount for off-balance sheet refers to notional values
2 These instruments are held at fair value on the balance sheet. The ECL provision in respect of debt securities measured at FVOCI is held within the OCI reserve
3 These are off-balance sheet instruments. Only the ECL is recorded on-balance sheet as a financial liability and therefore there is no "net carrying amount". ECL allowances on off-balance sheet instruments are held as liability provisions to the extent that the drawn and undrawn components of loan exposures can be separately identified. Otherwise they will be reported against the drawn component
4 Stage 1 ECL is not material
5 Stage 3 gross includes $28 million originated credit-impaired debt securities with impairment of $13 million
Credit quality analysis (reviewed)
Credit quality by client segment
For CCIB, exposures are analysed by credit grade (CG), which plays a central role in the quality assessment and monitoring of risk. All loans are assigned a CG, which is reviewed periodically and amended in light of changes in the borrower's circumstances or behaviour. CGs 1 to 12 are assigned to stage 1 and stage 2 (performing) clients or accounts, while CGs 13 and 14 are assigned to stage 3 (credit-impaired) clients. Consumer and Business Banking portfolios are analysed by days past due and Private Banking by the type of collateral held.
Mapping of credit quality
The Group uses the following internal risk mapping to determine the credit quality for loans.
Credit quality description | Corporate, Commercial & Institutional Banking | Private Banking1 | Consumer & Business Banking5 | ||
Internal grade mapping | S&P external ratings equivalent | RegulatoryPD range (%) | Internal ratings | Number of days past due | |
Strong | 1A to 5B | AAA/AA+ to BBB-/BB+² | 0 to 0.425 | Class I and Class IV | Current loans (no past dues nor impaired) |
Satisfactory | 6A to 11C | BB+/BB to B-/CCC+³ | 0.426 to 15.75 | Class II and Class III | Loans past due till 29 days |
Higher risk | Grade 12 | CCC+ to C⁴ | 15.751 to 99.999 | Stressed Assets Group (SAG) managed | Past due loans 30 days and over till 90 days |
1 For Private Banking, classes of risk represent the type of collateral held. Class I represents facilities with liquid collateral, such as cash and marketable securities. Class II represents unsecured/partially secured facilities and those with illiquid collateral, such as equity in private enterprises. Class III represents facilities with residential or commercial real estate collateral. Class IV covers margin trading facilities
2 Banks' rating: AAA/AA+ to BB+. Sovereigns' rating: AAA to BB+
3 Banks' rating: BB to "CCC+ to C". Sovereigns' rating: BB+/BB to B-/CCC+
4 Banks' rating: CCC+ to C. Sovereigns' rating: CCC+ to "CCC+ to C"
5 Medium enterprise clients within Business Banking are managed using the same internal credit grades as CCIB
Page 9
The table overleaf sets out the gross loans and advances held at amortised cost, expected credit loss provisions and expected credit loss coverage by business segment and stage. Expected credit loss coverage represents the expected credit loss reported for each segment and stage as a proportion of the gross loan balance for each segment and stage.
Stage 1:
Stage 1 gross loans and advances to customers decreased by $17.5 billion to $278 billion (31 December 2022: $295 billion).
CCIB stage 1 loans decreased by $8.1 billion to $118 billion (31 December 2022: $126 billion). This is due to a decrease in exposures in the Financing, insurance and non-banking and Manufacturing sectors.
CPBB stage 1 loans decreased by $4 billion to $125 billion (31 December 2022: $129 billion) mainly due to a decrease in mortgage portfolio mainly in Hong Kong, which was aligned with the Hong Kong mortgage strategy refinements since late 2022 in consideration of the increasing interest rate environment.
Ventures had an increase of $0.2 billion to $0.9 billion (31 December 2022: $0.7 billion) from new lending in Mox Bank and Trust Bank Singapore.
Central and other items segment decreased by $5.3 billion to $34 billion (31 December 2022: $39 billion) due to lower placements with governments.
The stage 1 coverage ratio remained stable at 0.2 per cent (31 December 2022: 0.2 per cent).
Stage 2:
Stage 2 loans and advances to customers decreased by $2.9 billion to $10.1 billion (31 December 2022: $13 billion) primarily in CCIB due to reductions in the Commercial real estate and Mining and quarrying sectors. The proportion of stage 2 loans also reduced to 3 per cent (31 December 2022: 4 per cent).
CPBB stage 2 loans increased by $0.3 billion to $2 billion (31 December 2022: $1.7 billion) primarily due to an increase in Secured wealth.
Stage 2 loans to customers classified as 'Higher Risk' decreased by $0.6 billion to $1.2 billion (31 December 2022: $1.8 billion) due to repayments and outflows to stage 3 in CCIB.
The overall stage 2 cover ratio remained broadly stable at 4.0 per cent (31 December 2022: 3.4 per cent).
Stage 3:
Customer total gross stage 3 loans decreased by $0.2 billion to $7.7 billion (31 December 2022: $7.8 billion) primarily in the CCIB segment. The decrease was the result of material repayments and debt sales in H1 2023.
CPBB stage 3 loans remained broadly the same at $1.5 billion (31 December 2022: $1.5 billion).
Ventures Stage 3 balances increased by $5 million to $6 million (31 December 2022: $1 million) due to downgrades in Mox Bank and Trust Bank Singapore.
Page 10
Loans and advances by client segment (reviewed)
Amortised cost | 30.06.23 | |||||||
Banks$million | Customers | Undrawn commitments$million | Financial Guarantees$million | |||||
Corporate, Commercial & Institutional Banking$million | Consumer, Private & Business Banking$million | Ventures$million | Central &other items$million | Customer Total$million | ||||
Stage 1 | 43,980 | 118,179 | 124,735 | 927 | 33,870 | 277,711 | 169,843 | 65,574 |
- Strong | 33,450 | 81,296 | 120,215 | 920 | 33,579 | 236,010 | 153,463 | 43,749 |
- Satisfactory | 10,530 | 36,883 | 4,520 | 7 | 291 | 41,701 | 16,380 | 21,825 |
Stage 2 | 565 | 8,059 | 2,012 | 39 | - | 10,110 | 4,363 | 2,238 |
- Strong | 260 | 1,632 | 1,519 | 20 | - | 3,171 | 1,091 | 263 |
- Satisfactory | 50 | 5,366 | 336 | 9 | - | 5,711 | 2,785 | 1,620 |
- Higher risk | 255 | 1,061 | 157 | 10 | - | 1,228 | 487 | 355 |
Of which (stage 2): | ||||||||
- Less than 30 days past due | - | 268 | 336 | 9 | - | 613 | - | - |
- More than 30 days past due | 7 | 111 | 157 | 10 | - | 278 | - | - |
Stage 3, credit-impaired financial assets | 78 | 6,038 | 1,450 | 6 | 193 | 7,687 | 3 | 591 |
Gross balance¹ | 44,623 | 132,276 | 128,197 | 972 | 34,063 | 295,508 | 174,209 | 68,403 |
Stage 1 | (6) | (105) | (332) | (14) | - | (451) | (45) | (13) |
- Strong | (4) | (24) | (238) | (14) | - | (276) | (26) | (7) |
- Satisfactory | (2) | (81) | (94) | - | - | (175) | (19) | (6) |
Stage 2 | (12) | (280) | (116) | (4) | - | (400) | (43) | (20) |
- Strong | (1) | (38) | (39) | (2) | - | (79) | (5) | (1) |
- Satisfactory | (5) | (162) | (28) | (1) | - | (191) | (21) | (11) |
- Higher risk | (6) | (80) | (49) | (1) | - | (130) | (17) | (8) |
Of which (stage 2): | ||||||||
- Less than 30 days past due | - | (10) | (28) | (1) | - | (39) | - | - |
- More than 30 days past due | - | (1) | (49) | (1) | - | (51) | - | - |
Stage 3, credit-impaired financial assets | (3) | (3,724) | (779) | (5) | (12) | (4,520) | (1) | (120) |
Total credit impairment | (21) | (4,109) | (1,227) | (23) | (12) | (5,371) | (89) | (153) |
Net carrying value | 44,602 | 128,167 | 126,970 | 949 | 34,051 | 290,137 | ||
Stage 1 | 0.0% | 0.1% | 0.3% | 1.5% | 0.0% | 0.2% | 0.0% | 0.0% |
- Strong | 0.0% | 0.0% | 0.2% | 1.5% | 0.0% | 0.1% | 0.0% | 0.0% |
- Satisfactory | 0.0% | 0.2% | 2.1% | 0.0% | 0.0% | 0.4% | 0.1% | 0.0% |
Stage 2 | 2.1% | 3.5% | 5.8% | 10.3% | 0.0% | 4.0% | 1.0% | 0.9% |
- Strong | 0.4% | 2.3% | 2.6% | 10.0% | 0.0% | 2.5% | 0.5% | 0.4% |
- Satisfactory | 10.0% | 3.0% | 8.3% | 11.1% | 0.0% | 3.3% | 0.8% | 0.7% |
- Higher risk | 2.4% | 7.5% | 31.2% | 10.0% | 0.0% | 10.6% | 3.5% | 2.3% |
Of which (stage 2): | ||||||||
- Less than 30 days past due | 0.0% | 3.7% | 8.3% | 11.1% | 0.0% | 6.4% | 0.0% | 0.0% |
- More than 30 days past due | 0.0% | 0.9% | 31.2% | 10.0% | 0.0% | 18.3% | 0.0% | 0.0% |
Stage 3, credit-impaired financial assets (S3) | 3.8% | 61.7% | 53.7% | 83.3% | 6.2% | 58.8% | 33.3% | 20.3% |
Cover ratio | 0.0% | 3.1% | 1.0% | 2.4% | 0.0% | 1.8% | 0.1% | 0.2% |
Fair value through profit or loss | ||||||||
Performing | 36,593 | 45,641 | 19 | - | 1 | 45,661 | - | - |
- Strong | 31,754 | 29,652 | 19 | - | - | 29,671 | - | - |
- Satisfactory | 4,839 | 15,956 | - | - | - | 15,956 | - | - |
- Higher risk | - | 33 | - | - | 1 | 34 | - | - |
Defaulted (CG13-14) | - | 25 | - | - | - | 25 | - | - |
Gross balance (FVTPL)2 | 36,593 | 45,666 | 19 | - | 1 | 45,686 | - | - |
Net carrying value (incl FVTPL) | 81,195 | 173,833 | 126,989 | 949 | 34,052 | 335,823 | - | - |
1 Loans and advances includes reverse repurchase agreements and other similar secured lending of $10,950 million under Customers and of $1,383 million under Banks, held at amortised cost
2 Loans and advances includes reverse repurchase agreements and other similar secured lending of $40,318 million under Customers and of $34,467 million under Banks, held at fair value through profit or loss
Page 11
Amortised cost | 31.12.22 | |||||||
Banks$million | Customers | Undrawn commitments$million | Financial Guarantees$million | |||||
Corporate, Commercial & Institutional Banking$million | Consumer, Private & Business Banking1$million | Ventures$million | Central &other items$million | Customer Total$million | ||||
Stage 1 | 39,149 | 126,261 | 129,134 | 691 | 39,133 | 295,219 | 162,958 | 56,683 |
- Strong | 27,941 | 89,567 | 124,734 | 685 | 39,133 | 254,119 | 148,303 | 39,612 |
- Satisfactory | 11,208 | 36,694 | 4,400 | 6 | - | 41,100 | 14,655 | 17,071 |
Stage 2 | 337 | 11,355 | 1,670 | 18 | - | 13,043 | 5,582 | 3,062 |
- Strong | 148 | 2,068 | 1,215 | 10 | - | 3,293 | 1,449 | 522 |
- Satisfactory | 119 | 7,783 | 146 | 4 | - | 7,933 | 3,454 | 2,134 |
- Higher risk | 70 | 1,504 | 309 | 4 | - | 1,817 | 679 | 406 |
Of which (stage 2): | ||||||||
- Less than 30 days past due | 5 | 109 | 148 | 4 | - | 261 | - | - |
- More than 30 days past due | 6 | 23 | 310 | 4 | - | 337 | - | - |
Stage 3, credit-impaired financial assets | 59 | 6,143 | 1,453 | 1 | 248 | 7,845 | 128 | 665 |
Gross balance1 | 39,545 | 143,759 | 132,257 | 710 | 39,381 | 316,107 | 168,668 | 60,410 |
Stage 1 | (9) | (143) | (406) | (10) | - | (559) | (41) | (11) |
- Strong | (3) | (43) | (332) | (10) | - | (385) | (28) | (3) |
- Satisfactory | (6) | (100) | (74) | - | - | (174) | (13) | (8) |
Stage 2 | (3) | (323) | (120) | (1) | - | (444) | (53) | (28) |
- Strong | - | (30) | (62) | (1) | - | (93) | (6) | - |
- Satisfactory | (2) | (159) | (17) | - | - | (176) | (42) | (15) |
- Higher risk | (1) | (134) | (41) | - | - | (175) | (5) | (13) |
Of which (stage 2): | ||||||||
- Less than 30 days past due | - | (2) | (17) | - | - | (19) | - | - |
- More than 30 days past due | - | (1) | (41) | - | - | (42) | - | - |
Stage 3, credit-impaired financial assets | (14) | (3,662) | (776) | (1) | (18) | (4,457) | - | (147) |
Total credit impairment | (26) | (4,128) | (1,302) | (12) | (18) | (5,460) | (94) | (186) |
Net carrying value | 39,519 | 139,631 | 130,955 | 698 | 39,363 | 310,647 | ||
Stage 1 | 0.0% | 0.1% | 0.3% | 1.4% | 0.0% | 0.2% | 0.0% | 0.0% |
- Strong | 0.0% | 0.0% | 0.3% | 1.5% | 0.0% | 0.2% | 0.0% | 0.0% |
- Satisfactory | 0.1% | 0.3% | 1.7% | 0.0% | 0.0% | 0.4% | 0.1% | 0.0% |
Stage 2 | 0.9% | 2.8% | 7.2% | 5.6% | 0.0% | 3.4% | 0.9% | 0.9% |
- Strong | 0.0% | 1.5% | 5.1% | 10.0% | 0.0% | 2.8% | 0.4% | 0.0% |
- Satisfactory | 1.7% | 2.0% | 11.6% | 0.0% | 0.0% | 2.2% | 1.2% | 0.7% |
- Higher risk | 1.4% | 8.9% | 13.3% | 0.0% | 0.0% | 9.6% | 0.7% | 3.2% |
Of which (stage 2): | ||||||||
- Less than 30 days past due | 0.0% | 1.8% | 11.5% | 0.0% | 0.0% | 7.3% | 0.0% | 0.0% |
- More than 30 days past due | 0.0% | 4.3% | 13.2% | 0.0% | 0.0% | 12.5% | 0.0% | 0.0% |
Stage 3, credit-impaired financial assets (S3) | 23.7% | 59.6% | 53.4% | 100.0% | 7.3% | 56.8% | 0.0% | 22.1% |
Cover ratio | 0.1% | 2.9% | 1.0% | 1.7% | 0.0% | 1.7% | 0.1% | 0.3% |
Fair value through profit or loss | ||||||||
Performing | 24,930 | 44,461 | 28 | - | 2,557 | 47,046 | - | - |
- Strong | 21,451 | 36,454 | 27 | - | 2,409 | 38,890 | - | - |
- Satisfactory | 3,479 | 8,007 | 1 | - | 148 | 8,156 | - | - |
- Higher risk | - | - | - | - | - | - | - | - |
Defaulted (CG13-14) | - | 37 | - | - | - | 37 | - | - |
Gross balance (FVTPL)2 | 24,930 | 44,498 | 28 | - | 2,557 | 47,083 | - | - |
Net carrying value (incl FVTPL) | 64,449 | 184,129 | 130,983 | 698 | 41,920 | 357,730 | - | - |
1 Loans and advances includes reverse repurchase agreements and other similar secured lending of $24,498 million under Customers and of $978 million under Banks, held at amortised cost
2 Loans and advances includes reverse repurchase agreements and other similar secured lending of $40,537 million under Customers and of $23,954 million under Banks, held at fair value through profit or loss
Page 12
Loans and advances by client segment credit quality analysis
Credit grade | Regulatory 1 yearPD range (%) | S&P external ratings equivalent | Corporate, Commercial & Institutional Banking | |||||||
30.06.23 | ||||||||||
Gross | Credit impairment | |||||||||
Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | |||
Strong | 81,296 | 1,632 | - | 82,928 | (24) | (38) | - | (62) | ||
1A-2B | 0 - 0.045 | AA- and above | 7,307 | 90 | - | 7,397 | (1) | - | - | (1) |
3A-4A | 0.046 - 0.110 | A+ to A- | 33,927 | 371 | - | 34,298 | (5) | - | - | (5) |
4B-5B | 0.111 - 0.425 | BBB+ to BBB-/BB+ | 40,062 | 1,171 | - | 41,233 | (18) | (38) | - | (56) |
Satisfactory | 36,883 | 5,366 | - | 42,249 | (81) | (162) | - | (243) | ||
6A-7B | 0.426 - 1.350 | BB+/BB to BB- | 22,743 | 739 | - | 23,482 | (58) | (28) | - | (86) |
8A-9B | 1.351 - 4.000 | BB-/B+ to B+/B | 9,571 | 3,327 | - | 12,898 | (10) | (115) | - | (125) |
10A-11C | 4.001 - 15.75 | B to B-/CCC+ | 4,569 | 1,300 | - | 5,869 | (13) | (19) | - | (32) |
Higher risk | - | 1,061 | - | 1,061 | - | (80) | - | (80) | ||
12 | 15.751 - 99.999 | CCC+/C | - | 1,061 | - | 1,061 | - | (80) | - | (80) |
Credit-impaired | - | - | 6,038 | 6,038 | - | - | (3,724) | (3,724) | ||
13-14 | 100 | Defaulted | - | - | 6,038 | 6,038 | - | - | (3,724) | (3,724) |
Total | 118,179 | 8,059 | 6,038 | 132,276 | (105) | (280) | (3,724) | (4,109) | ||
Credit grade | Regulatory 1 yearPD range (%) | S&P external ratings equivalent | 31.12.22 | |||||||
Gross | Credit impairment | |||||||||
Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | |||
Strong | 89,567 | 2,068 | - | 91,635 | (43) | (30) | - | (73) | ||
1A-2B | 0 - 0.045 | AA- and above | 8,247 | 117 | - | 8,364 | (4) | - | - | (4) |
3A-4A | 0.046 - 0.110 | A+ to A- | 36,379 | 321 | - | 36,700 | (5) | - | - | (5) |
4B-5B | 0.111 - 0.425 | BBB+ to BBB-/BB+ | 44,941 | 1,630 | - | 46,571 | (34) | (30) | - | (64) |
Satisfactory | 36,694 | 7,783 | - | 44,477 | (100) | (159) | - | (259) | ||
6A-7B | 0.426 - 1.350 | BB+/BB to BB- | 23,196 | 2,684 | - | 25,880 | (67) | (94) | - | (161) |
8A-9B | 1.351 - 4.000 | BB-/B+ to B+/B | 9,979 | 3,116 | - | 13,095 | (20) | (35) | - | (55) |
10A-11C | 4.001 - 15.75 | B to B-/CCC+ | 3,519 | 1,983 | - | 5,502 | (13) | (30) | - | (43) |
Higher risk | - | 1,504 | - | 1,504 | (134) | - | - | (134) | ||
12 | 15.751 - 99.999 | CCC+/C | - | 1,504 | - | 1,504 | - | (134) | - | (134) |
Credit-impaired | - | - | 6,143 | 6,143 | - | - | (3,662) | (3,662) | ||
13-14 | 100 | Defaulted | - | - | 6,143 | 6,143 | - | - | (3,662) | (3,662) |
Total | 126,261 | 11,355 | 6,143 | 143,759 | (143) | (323) | (3,662) | (4,128) | ||
Credit grade | Consumer, Private & Business Banking | |||||||
30.06.23 | ||||||||
Gross | Credit impairment | |||||||
Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | |
Strong | 120,215 | 1,519 | - | 121,734 | (238) | (39) | - | (277) |
Secured | 103,006 | 1,185 | - | 104,191 | (45) | (5) | - | (50) |
Unsecured | 17,209 | 334 | - | 17,543 | (193) | (34) | - | (227) |
Satisfactory | 4,520 | 336 | - | 4,856 | (94) | (28) | - | (122) |
Secured | 4,247 | 297 | - | 4,544 | (6) | (3) | - | (9) |
Unsecured | 273 | 39 | - | 312 | (88) | (25) | - | (113) |
Higher risk | - | 157 | - | 157 | - | (49) | - | (49) |
Secured | - | 62 | - | 62 | - | (6) | - | (6) |
Unsecured | - | 95 | - | 95 | - | (43) | - | (43) |
Credit-impaired | - | - | 1,450 | 1,450 | - | - | (779) | (779) |
Secured | 1,066 | 1,066 | (560) | (560) | ||||
Unsecured | - | - | 384 | 384 | - | - | (219) | (219) |
Total | 124,735 | 2,012 | 1,450 | 128,197 | (332) | (116) | (779) | (1,227) |
Page 13
Credit grade | Consumer, Private & Business Banking | |||||||
31.12.22 | ||||||||
Gross | Credit impairment | |||||||
Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | |
Strong | 124,734 | 1,215 | - | 125,949 | (332) | (62) | - | (394) |
Secured | 107,262 | 995 | - | 108,257 | (48) | (12) | - | (60) |
Unsecured | 17,472 | 220 | - | 17,692 | (284) | (50) | - | (334) |
Satisfactory | 4,400 | 146 | - | 4,546 | (74) | (17) | - | (91) |
Secured | 4,006 | 115 | - | 4,121 | (11) | (1) | - | (12) |
Unsecured | 394 | 31 | - | 425 | (63) | (16) | - | (79) |
Higher risk | - | 309 | - | 309 | - | (41) | - | (41) |
Secured | - | 216 | - | 216 | - | (6) | - | (6) |
Unsecured | - | 93 | - | 93 | - | (35) | - | (35) |
Credit-impaired | - | - | 1,453 | 1,453 | - | - | (776) | (776) |
Secured | 1,028 | 1,028 | (552) | (552) | ||||
Unsecured | - | - | 425 | 425 | - | - | (224) | (224) |
Total | 129,134 | 1,670 | 1,453 | 132,257 | (406) | (120) | (776) | (1,302) |
Credit quality by geographic region
The following table sets out the credit quality for gross loans and advances to customers and banks, held at amortised cost, by geographic region and stage.
Loans and advances to customers
Amortised cost | 30.06.23 | 31.12.22 | ||||||
Asia$million | Africa & Middle East$million | Europe & Americas$million | Total$million | Asia$million | Africa & Middle East$million | Europe & Americas$million | Total$million | |
Gross (stage 1) | 233,386 | 17,068 | 27,257 | 277,711 | 248,625 | 17,553 | 29,041 | 295,219 |
Provision (stage 1) | (386) | (58) | (7) | (451) | (454) | (73) | (32) | (559) |
Gross (stage 2) | 6,060 | 2,389 | 1,661 | 10,110 | 8,302 | 3,122 | 1,619 | 13,043 |
Provision (stage 2) | (256) | (93) | (51) | (400) | (337) | (104) | (3) | (444) |
Gross (stage 3) | 4,511 | 2,941 | 235 | 7,687 | 4,562 | 2,725 | 558 | 7,845 |
Provision (stage 3) | (2,566) | (1,747) | (207) | (4,520) | (2,483) | (1,765) | (209) | (4,457) |
Net loans1 | 240,749 | 20,500 | 28,888 | 290,137 | 258,215 | 21,458 | 30,974 | 310,647 |
1 Includes reverse repurchase agreements and other similar secured lending
Loans and advances to banks
Amortised cost | 30.06.23 | 31.12.22 | ||||||
Asia$million | Africa & Middle East$million | Europe & Americas$million | Total$million | Asia$million | Africa & Middle East$million | Europe & Americas $million | Total$million | |
Gross (stage 1) | 31,347 | 3,141 | 9,492 | 43,980 | 21,806 | 3,818 | 13,525 | 39,149 |
Provision (stage 1) | (4) | - | (2) | (6) | (3) | (4) | (2) | (9) |
Gross (stage 2) | 38 | 276 | 251 | 565 | 212 | 116 | 9 | 337 |
Provision (stage 2) | (4) | (8) | - | (12) | (2) | (1) | - | (3) |
Gross (stage 3) | 78 | - | - | 78 | 59 | - | - | 59 |
Provision (stage 3) | (3) | - | - | (3) | (14) | - | - | (14) |
Net loans1 | 31,452 | 3,409 | 9,741 | 44,602 | 22,058 | 3,929 | 13,532 | 39,519 |
1 Includes reverse repurchase agreements and other similar secured lending
Movement in gross exposures and credit impairment for loans and advances, debt securities, undrawn commitments and financial guarantees (reviewed)
The tables overleaf set out the movement in gross exposures and credit impairment by stage in respect of amortised cost loans to banks and customers, undrawn commitments, financial guarantees and debt securities classified at amortised cost and FVOCI. The tables are presented for the Group, debt securities and other eligible bills.
Methodology
The movement lines within the tables are an aggregation of monthly movements over the year and will therefore reflect the accumulation of multiple trades during the year. The credit impairment charge in the income statement comprises the amounts within the boxes in the table below, less recoveries of amounts previously written off. Discount unwind is reported in net interest income and related to stage 3 financial instruments only.
Page 14
The approach for determining the key line items in the tables is set out below.
• Transfers - transfers between stages are deemed to occur at the beginning of a month based on prior month closing balances
• Net remeasurement from stage changes - the remeasurement of credit impairment provisions arising from a change in stage is reported within the stage that the assets are transferred to. For example, assets transferred into stage 2 are remeasured from a 12-month to a lifetime expected credit loss, with the effect of remeasurement reported in stage 2. For stage 3, this represents the initial remeasurement from specific provisions recognised on individual assets transferred into stage 3 in the year
• Net changes in exposures - new business written less repayments in the year. Within stage 1, new business written will attract up to 12 months of expected credit loss charges. Repayments of non-amortising loans (primarily within CCIB) will have low amounts of expected credit loss provisions attributed to them, due to the release of provisions over the term to maturity. In stages 2 and 3, the amounts principally reflect repayments although stage 2 may include new business written where clients are on non-purely precautionary early alert, are CG 12, or when non-investment grade debt securities are acquired.
• Changes in risk parameters - for stages 1 and 2, this reflects changes in the probability of default (PD), loss given default (LGD) and exposure at default (EAD) of assets during the year, which includes the impact of releasing provisions over the term to maturity. It also includes the effect of changes in forecasts of macroeconomic variables during the year. In stage 3, this line represents additional specific provisions recognised on exposures held within stage 3
• Interest due but not paid - change in contractual amount of interest due in stage 3 financial instruments but not paid, being the net of accruals, repayments and write-offs, together with the corresponding change in credit impairment
Changes to ECL models, which incorporate changes to model approaches and methodologies, are not reported as a separate line item as these have an impact over a number of lines and stages.
Movements during the year
Stage 1 gross exposures decreased by $6 billion to $714 billion (31 December 2022: $720 billion). CCIB increased by $10.7 billion to $326 billion (31 December 2022: $315 billion) due to off balance sheet exposures, which was partly offset by a decrease in loans and advances to customers mainly due to lower reverse repo positions. CPBB decreased by $4.3 billion to $189 billion (31 December 2022: $193 billion) which was largely driven by the mortgage portfolio. Stage 1 debt securities decreased by $9 billion to $157 billion (31 December 2022: $166 billion) due to liquidity management and maturities.
Total stage 1 provisions decreased by $95 million to $550 million (31 December 2022: $645 million)). CPBB decreased by $72 million to $341 million (31 December 2022: $413 million) largely driven by the release of the judgemental non-linearity post model adjustment and from overlay releases, both of which are reported in 'Changes in risk parameters'. CCIB provisions decreased by $34 million to $160 million (31 December 2022: $194 million) primarily due to new originations and model updates. Debt securities provision increased by $10 million to $35 million (31 December 2022: $25 million).
Stage 2 gross exposures decreased by $5.8 billion to $21.7 billion (31 December 2022: $27.5 billion), primarily driven by $5 billion of net outflows from exposure changes in CCIB, particularly in the Commercial real estate, Mining and quarrying, and Food and household products sectors. CPBB exposures increased by $0.3 billion to $2.2 billion (31 December 2022: $1.8 billion), of which $0.2 billion was from the Secured wealth portfolio. Debt securities decreased by $1 billion to $4.4 billion (31 December 2022: $5.5 billion).
Stage 2 provisions decreased by $104 million to $514 million (31 December 2022: $618 million). CCIB provisions decreased by $55 million to $356 million (31 December 2022: $411 million) was from releases due to exposure reductions and transfers to stage 3 for one China commercial real estate exposure which was partly offset by a further downgrade within stage 2 of Pakistan sovereign clients and model updates, both of which impacted 'Changes in risk parameters'. CPBB provisions was broadly stable at $115 million (31 December 2022: $118 million) as normal flow was offset by the release of the judgemental non-linearity post model adjustment and overlay releases within 'Changes in risk parameters'. Central and other items reduced by $50 million largely due to exposure reductions and shortening of tenors, particularly in Pakistan.
Page 15
Stage 3 gross loans for CCIB decreased by $0.3 billion to $6.7 billion (31 December 2022: $7 billion) as upgrades and repayments were partly offset by the downgrade of one China commercial real estate client and downgrades in Nigeria due to past dues exceeding 90 days for our clients owing to the non-availability of USD. CCIB provisions increased by $25 million to $3.8 billion (31 December 2022: $3.8 billion) as charges from new downgrades were offset by releases due to repayments. CPBB total stage 3 loans were stable at $1.5 billion (31 December 2022: $1.5 billion) and provisions increased by $5 million to $0.8 billion (31 December 2022: $0.8 billion). Debt security gross assets increased by $24 million to $168 million (31 December 2022: $144 million) due to one new inflow. Central and other items stage 3 provision decreased by $50 million due to debt restructuring in Ghana.
All segments (reviewed)
Amortised cost and FVOCI | Stage 1 | Stage 2 | Stage 3⁵ | Total | ||||||||
Gross balance3$million | Total credit impair-ment$million | Net$million | Gross balance3$million | Total credit impair-ment$million | Net$million | Gross balance3$million | Total credit impair-ment$million | Net$million | Gross balance3$million | Total credit impair-ment$million | Net$million | |
As at 1 January 2022 | 684,759 | (609) | 684,150 | 34,550 | (652) | 33,898 | 9,061 | (4,941) | 4,120 | 728,370 | (6,202) | 722,168 |
Transfers to stage 1 | 24,666 | (555) | 24,111 | (24,633) | 555 | (24,078) | (33) | - | (33) | - | - | - |
Transfers to stage 2 | (46,960) | 228 | (46,732) | 47,479 | (246) | 47,233 | (519) | 18 | (501) | - | - | - |
Transfers to stage 3 | (176) | 74 | (102) | (3,630) | 253 | (3,377) | 3,806 | (327) | 3,479 | - | - | - |
Net change in exposures | 83,204 | (137) | 83,067 | (24,324) | 93 | (24,231) | (1,710) | 338 | (1,372) | 57,170 | 294 | 57,464 |
Net remeasurement from stage changes | - | 45 | 45 | - | (126) | (126) | - | (168) | (168) | - | (249) | (249) |
Changes in models | - | - | - | - | - | - | - | - | - | - | - | - |
Changes in risk parameters | - | 106 | 106 | - | (387) | (387) | - | (895) | (895) | - | (1,176) | (1,176) |
Write-offs | - | - | - | - | - | - | (949) | 949 | - | (949) | 949 | - |
Interest due but unpaid | - | - | - | - | - | - | (157) | 157 | - | (157) | 157 | - |
Discount unwind | - | - | - | - | - | - | - | 136 | 136 | - | 136 | 136 |
Exchange translation differences and other movements¹ | (25,381) | 203 | (25,178) | (1,963) | (108) | (2,071) | (658) | 9 | (649) | (28,002) | 104 | (27,898) |
As at 31 December 2022² | 720,112 | (645) | 719,467 | 27,479 | (618) | 26,861 | 8,841 | (4,724) | 4,117 | 756,432 | (5,987) | 750,445 |
Income statement ECL (charge)/release6 | 14 | (420) | (725) | (1,131) | ||||||||
Recoveries of amounts previously written off | - | - | 293 | 293 | ||||||||
Total credit impairment (charge)/release | 14 | (420) | (432) | (838) | ||||||||
As at 1 January 2023 | 720,112 | (645) | 719,467 | 27,479 | (618) | 26,861 | 8,841 | (4,724) | 4,117 | 756,432 | (5,987) | 750,445 |
Transfers to stage 1 | 12,502 | (475) | 12,027 | (12,501) | 475 | (12,026) | (1) | - | (1) | - | - | - |
Transfers to stage 2 | (24,381) | 209 | (24,172) | 24,464 | (211) | 24,253 | (83) | 2 | (81) | - | - | - |
Transfers to stage 3 | (31) | 1 | (30) | (1,334) | 182 | (1,152) | 1,365 | (183) | 1,182 | - | - | - |
Net change in exposures | 10,296 | (111) | 10,185 | (15,178) | 34 | (15,144) | (883) | 260 | (623) | (5,765) | 183 | (5,582) |
Net remeasurement from stage changes | - | 34 | 34 | - | (116) | (116) | - | (97) | (97) | - | (179) | (179) |
Changes in risk parameters | 2 | 124 | 126 | - | 14 | 14 | 7 | (434) | (427) | 9 | (296) | (287) |
Write-offs | - | - | - | - | - | - | (456) | 456 | - | (456) | 456 | - |
Interest due but unpaid | - | - | - | - | - | - | 2 | (2) | - | 2 | (2) | - |
Discount unwind | - | - | - | - | - | - | - | 97 | 97 | - | 97 | 97 |
Exchange translation differences and other movements¹ | (4,632) | 313 | (4,319) | (1,254) | (274) | (1,528) | (265) | (72) | (337) | (6,151) | (33) | (6,184) |
As at 30 June 2023² | 713,868 | (550) | 713,318 | 21,676 | (514) | 21,162 | 8,527 | (4,697) | 3,830 | 744,071 | (5,761) | 738,310 |
Income statement ECL (charge)/release⁶ | 47 | (68) | (271) | (292) | ||||||||
Recoveries of amounts previously written off | - | - | 141 | 141 | ||||||||
Total credit impairment (charge)/release4 | 47 | (68) | (130) | (151) | ||||||||
1 Includes fair value adjustments and amortisation on debt securities
2 Excludes Cash and balances at central banks, Accrued income, Assets held for sale and Other assets gross balances of $137,138 million (2022: $101,740 million) and Total credit impairment of $93 million (2022: $88 million)
3 The gross balance includes the notional amount of off -balance sheet instruments
4 Statutory basis
5 Stage 3 includes gross of $100 million (2022: $28 million) and ECL $14 million (2022: $13 million) originated credit-impaired debt securities
6 Does not include $10 million (2022: $2 million) release relating to Other assets
Page 16
Of which - movement of debt securities, alternative tier one and other eligible bills (reviewed)
Amortised cost and FVOCI | Stage 1 | Stage 2 | Stage 32 | Total | ||||||||
Gross balance$million | Total credit impair-ment$million | Net$million | Gross balance$million | Total credit impair-ment$million | Net$million | Gross balance$million | Total credit impair-ment$million | Net$million | Gross balance$million | Total credit impair-ment$million | Net3$million | |
As at 1 January 2022 | 157,352 | (67) | 157,285 | 5,315 | (42) | 5,273 | 113 | (66) | 47 | 162,780 | (175) | 162,605 |
Transfers to stage 1 | 2,296 | (22) | 2,274 | (2,296) | 22 | (2,274) | - | - | - | - | - | - |
Transfers to stage 2 | (3,942) | 38 | (3,904) | 3,942 | (38) | 3,904 | - | - | - | - | - | - |
Transfers to stage 3 | - | - | - | (66) | 42 | (24) | 66 | (42) | 24 | - | - | - |
Net change in exposures | 21,613 | (44) | 21,569 | (752) | 9 | (743) | - | 1 | 1 | 20,861 | (34) | 20,827 |
Net remeasurement from stage changes | - | 10 | 10 | - | (2) | (2) | - | (23) | (23) | - | (15) | (15) |
Changes in risk parameters | - | 38 | 38 | - | (98) | (98) | - | (13) | (13) | - | (73) | (73) |
Write-offs | - | - | - | - | - | - | (30) | 30 | - | (30) | 30 | - |
Interest due but unpaid | - | - | - | - | - | - | - | - | - | - | - | - |
Exchange translation differences and other movements1 | (11,216) | 22 | (11,194) | (688) | 17 | (671) | (5) | 7 | 2 | (11,909) | 46 | (11,863) |
As at 31 December 2022 | 166,103 | (25) | 166,078 | 5,455 | (90) | 5,365 | 144 | (106) | 38 | 171,702 | (221) | 171,481 |
Income statement ECL (charge)/release | 4 | (91) | (35) | (122) | ||||||||
Recoveries of amounts previously written off | - | - | - | - | ||||||||
Total credit impairment (charge)/release | 4 | (91) | (35) | (122) | ||||||||
As at 1 January 2023 | 166,103 | (25) | 166,078 | 5,455 | (90) | 5,365 | 144 | (106) | 38 | 171,702 | (221) | 171,481 |
Transfers to stage 1 | 297 | (1) | 296 | (297) | 1 | (296) | - | - | - | - | - | - |
Transfers to stage 2 | (394) | 3 | (391) | 394 | (3) | 391 | - | - | - | - | - | - |
Transfers to stage 3 | - | - | - | (17) | - | (17) | 17 | - | 17 | - | - | - |
Net change in exposures | (9,661) | (16) | (9,677) | (518) | 2 | (516) | - | - | - | (10,179) | (14) | (10,193) |
Net remeasurement from stage changes | - | 3 | 3 | - | (12) | (12) | - | - | - | - | (9) | (9) |
Changes in risk parameters | - | 17 | 17 | - | 47 | 47 | 7 | (4) | 3 | 7 | 60 | 67 |
Write-offs | - | - | - | - | - | - | - | - | - | - | - | - |
Interest due but unpaid | - | - | - | - | - | - | - | - | - | - | - | - |
Exchange translation differences and other movements1 | 415 | (16) | 399 | (617) | 16 | (601) | - | 57 | 57 | (202) | 57 | (145) |
As at 30 June 2023 | 156,760 | (35) | 156,725 | 4,400 | (39) | 4,361 | 168 | (53) | 115 | 161,328 | (127) | 161,201 |
Income statement ECL (charge)/release | 4 | 37 | (4) | 37 | ||||||||
Recoveries of amounts previously written off | - | - | - | - | ||||||||
Total credit impairment (charge)/release | 4 | 37 | (4) | 37 | ||||||||
1 Includes fair value adjustments and amortisation on debt securities
2 Stage 3 includes gross of $100 million (2022: $28 million) and ECL $14 million (2022: $13 million) originated credit-impaired debt securities
3 FVOCI instruments are not presented net of ECL . While the presentation is on a net basis for the table , the total net on-balance sheet amount to $161,254 million (31 December 2022: $171,640 million. Refer to the Analysis of financial instrument by stage table
Page 17
Corporate, Commercial & Institutional Banking(reviewed)
Amortised cost and FVOCI | Stage 1 | Stage 2 | Stage 3 | Total | ||||||||
Gross balance1 $million | Total credit impair-ment$million | Net$million | Gross balance1 $million | Total credit impair-ment$million | Net$million | Gross balance1 $million | Total credit impair-ment$million | Net$million | Gross balance1 $million | Total credit impair-ment$million | Net$million | |
As at 1 January 2022 | 313,132 | (163) | 312,969 | 25,437 | (425) | 25,012 | 7,372 | (4,079) | 3,293 | 345,941 | (4,667) | 341,274 |
Transfers to stage 1 | 17,565 | (227) | 17,338 | (17,565) | 227 | (17,338) | - | - | - | - | - | - |
Transfers to stage 2 | (37,505) | 48 | (37,457) | 37,944 | (66) | 37,878 | (439) | 18 | (421) | - | - | - |
Transfers to stage 3 | (42) | - | (42) | (2,478) | 134 | (2,344) | 2,520 | (134) | 2,386 | - | - | - |
Net change in exposures | 30,508 | (44) | 30,464 | (21,915) | 65 | (21,850) | (1,314) | 340 | (974) | 7,279 | 361 | 7,640 |
Net remeasurement from stage changes | - | 2 | 2 | - | (42) | (42) | - | (104) | (104) | - | (144) | (144) |
Changes in risk parameters | - | 21 | 21 | - | (154) | (154) | - | (551) | (551) | - | (684) | (684) |
Write-offs | - | - | - | - | - | - | (384) | 384 | - | (384) | 384 | - |
Interest due but unpaid | - | - | - | - | - | - | (130) | 130 | - | (130) | 130 | - |
Discount unwind | - | - | - | - | - | - | - | 110 | 110 | - | 110 | 110 |
Exchange translation differences and other movements | (8,221) | 169 | (8,052) | (1,275) | (150) | (1,425) | (631) | 64 | (567) | (10,127) | 83 | (10,044) |
As at 31 December 2022 | 315,437 | (194) | 315,243 | 20,148 | (411) | 19,737 | 6,994 | (3,822) | 3,172 | 342,579 | (4,427) | 338,152 |
Income statement ECL (charge)/release2 | (21) | (131) | (315) | (467) | ||||||||
Recoveries of amounts previously written off | - | - | 49 | 49 | ||||||||
Total credit impairment (charge)/release | (21) | (131) | (266) | (418) | ||||||||
As at 1 January 2023 | 315,437 | (194) | 315,243 | 20,148 | (411) | 19,737 | 6,994 | (3,822) | 3,172 | 342,579 | (4,427) | 338,152 |
Transfers to stage 1 | 10,283 | (346) | 9,937 | (10,283) | 346 | (9,937) | - | - | - | - | - | - |
Transfers to stage 2 | (20,151) | 168 | (19,983) | 20,181 | (170) | 20,011 | (30) | 2 | (28) | - | - | - |
Transfers to stage 3 | (5) | - | (5) | (810) | 95 | (715) | 815 | (95) | 720 | - | - | - |
Net change in exposures | 22,348 | (48) | 22,300 | (13,619) | 30 | (13,589) | (601) | 264 | (337) | 8,128 | 246 | 8,374 |
Net remeasurement from stage changes | - | 11 | 11 | - | (32) | (32) | - | (84) | (84) | - | (105) | (105) |
Changes in risk parameters | 2 | 37 | 39 | - | (44) | (44) | - | (232) | (232) | 2 | (239) | (237) |
Write-offs | - | - | - | - | - | - | (157) | 157 | - | (157) | 157 | - |
Interest due but unpaid | - | - | - | - | - | - | (52) | 52 | - | (52) | 52 | - |
Discount unwind | - | - | - | - | - | - | - | 85 | 85 | - | 85 | 85 |
Exchange translation differences and other movements | (1,771) | 212 | (1,559) | (554) | (170) | (724) | (259) | (174) | (433) | (2,584) | (132) | (2,716) |
As at 30 June 2023 | 326,143 | (160) | 325,983 | 15,063 | (356) | 14,707 | 6,710 | (3,847) | 2,863 | 347,916 | (4,363) | 343,553 |
Income statement ECL (charge)/release² | - | (46) | (52) | (98) | ||||||||
Recoveries of amounts previously written off | - | - | 24 | 24 | ||||||||
Total credit impairment (charge)/release | - | (46) | (28) | (74) | ||||||||
1 The gross balance includes the notional amount of off balance sheet instruments
2 Does not include $10 million (2022: $2 million) release relating to Other assets
Page 18
Consumer, Private and Business Banking (reviewed)
Amortised cost and FVOCI | Stage 1 | Stage 2 | Stage 3 | Total | ||||||||
Gross balance1 $million | Total credit impair-ment$million | Net$million | Gross balance1 $million | Total credit impair-ment$million | Net$million | Gross balance1 $million | Total credit impair-ment$million | Net$million | Gross balance1 $million | Total credit impair-ment$million | Net$million | |
As at 1 January 2022 | 190,860 | (377) | 190,483 | 3,675 | (185) | 3,490 | 1,578 | (797) | 781 | 196,113 | (1,359) | 194,754 |
Transfers to stage 1 | 4,798 | (314) | 4,484 | (4,765) | 314 | (4,451) | (33) | - | (33) | - | - | - |
Transfers to stage 2 | (5,498) | 92 | (5,406) | 5,578 | (92) | 5,486 | (80) | - | (80) | - | - | - |
Transfers to stage 3 | (81) | - | (81) | (890) | 151 | (739) | 971 | (151) | 820 | - | - | - |
Net change in exposures | 9,072 | (49) | 9,023 | (1,611) | 19 | (1,592) | (396) | - | (396) | 7,065 | (30) | 7,035 |
Net remeasurement from stage changes | - | 32 | 32 | - | (82) | (82) | - | (25) | (25) | - | (75) | (75) |
Changes in risk parameters | - | 63 | 63 | - | (132) | (132) | - | (331) | (331) | - | (400) | (400) |
Write-offs | - | - | - | - | - | - | (535) | 535 | - | (535) | 535 | - |
Interest due but unpaid | - | - | - | - | - | - | (27) | 27 | - | (27) | 27 | - |
Discount unwind | - | - | - | - | - | - | - | 26 | 26 | - | 26 | 26 |
Exchange translation differences and other movements | (5,912) | 140 | (5,772) | (166) | (111) | (277) | (24) | (60) | (84) | (6,102) | (31) | (6,133) |
As at 31 December 2022 | 193,239 | (413) | 192,826 | 1,821 | (118) | 1,703 | 1,454 | (776) | 678 | 196,514 | (1,307) | 195,207 |
Income statement ECL (charge)/release | 46 | (195) | (356) | (505) | ||||||||
Recoveries of amounts previously written off | - | - | 245 | 245 | ||||||||
Total credit impairment (charge)/release | 46 | (195) | (111) | (260) | ||||||||
As at 1 January 2023 | 193,239 | (413) | 192,826 | 1,821 | (118) | 1,703 | 1,454 | (776) | 678 | 196,514 | (1,307) | 195,207 |
Transfers to stage 1 | 1,911 | (124) | 1,787 | (1,910) | 124 | (1,786) | (1) | - | (1) | - | - | - |
Transfers to stage 2 | (3,792) | 36 | (3,756) | 3,845 | (36) | 3,809 | (53) | - | (53) | - | - | - |
Transfers to stage 3 | (24) | 1 | (23) | (508) | 87 | (421) | 532 | (88) | 444 | - | - | - |
Net change in exposures | 351 | (42) | 309 | (1,059) | 8 | (1,051) | (232) | - | (232) | (940) | (34) | (974) |
Net remeasurement from stage changes | - | 20 | 20 | - | (72) | (72) | - | (12) | (12) | - | (64) | (64) |
Changes in risk parameters | - | 59 | 59 | - | 11 | 11 | - | (199) | (199) | - | (129) | (129) |
Write-offs | - | - | - | - | - | - | (299) | 299 | - | (299) | 299 | - |
Interest due but unpaid | - | - | - | - | - | - | 54 | (54) | - | 54 | (54) | - |
Discount unwind | - | - | - | - | - | - | - | 12 | 12 | - | 12 | 12 |
Exchange translation differences and other movements | (2,711) | 122 | (2,589) | (31) | (119) | (150) | - | 37 | 37 | (2,742) | 40 | (2,702) |
As at 30 June 2023 | 188,974 | (341) | 188,633 | 2,158 | (115) | 2,043 | 1,455 | (781) | 674 | 192,587 | (1,237) | 191,350 |
Income statement ECL (charge)/release | 37 | (53) | (211) | (227) | ||||||||
Recoveries of amounts previously written off | - | - | 117 | 117 | ||||||||
Total credit impairment (charge)/release | 37 | (53) | (94) | (110) | ||||||||
1 The gross balance includes the notional amount of off balance sheet instruments
Page 19
Consumer, Private and Business Banking - Secured (reviewed)
Amortised cost and FVOCI | Stage 1 | Stage 2 | Stage 3 | Total | ||||||||
Gross balance1 $million | Total credit impair-ment$million | Net$million | Gross balance1 $million | Total credit impair-ment$million | Net$million | Gross balance1 $million | Total credit impair-ment$million | Net$million | Gross balance1 $million | Total credit impair-ment$million | Net$million | |
As at 1 January 2022 | 136,600 | (96) | 136,504 | 2,685 | (32) | 2,653 | 1,103 | (517) | 586 | 140,388 | (645) | 139,743 |
Transfers to stage 1 | 3,080 | (28) | 3,052 | (3,054) | 28 | (3,026) | (26) | - | (26) | - | - | - |
Transfers to stage 2 | (3,254) | 11 | (3,243) | 3,319 | (11) | 3,308 | (65) | - | (65) | - | - | - |
Transfers to stage 3 | (38) | 1 | (37) | (473) | 1 | (472) | 511 | (2) | 509 | - | - | - |
Net change in exposures | 3,093 | (8) | 3,085 | (945) | 1 | (944) | (259) | - | (259) | 1,889 | (7) | 1,882 |
Net remeasurement from stage changes | - | 1 | 1 | - | (1) | (1) | - | (4) | (4) | - | (4) | (4) |
Changes in risk parameters | - | (4) | (4) | - | 48 | 48 | - | (80) | (80) | - | (36) | (36) |
Write-offs | - | - | - | - | - | - | (78) | 78 | - | (78) | 78 | - |
Interest due but unpaid | - | - | - | - | - | - | - | - | - | - | - | - |
Discount unwind | - | - | - | - | - | - | - | - | - | - | - | - |
Exchange translation differences and other movements | (4,119) | 63 | (4,056) | (119) | (51) | (170) | (158) | (27) | (185) | (4,396) | (15) | (4,411) |
As at 31 December 2022 | 135,362 | (60) | 135,302 | 1,413 | (17) | 1,396 | 1,028 | (552) | 476 | 137,803 | (629) | 137,174 |
Income statement ECL (charge)/release | (11) | 48 | (84) | (47) | ||||||||
Recoveries of amounts previously written off | - | - | 55 | 55 | ||||||||
Total credit impairment (charge)/release | (11) | 48 | (29) | 8 | ||||||||
As at 1 January 2023 | 135,362 | (60) | 135,302 | 1,413 | (17) | 1,396 | 1,028 | (552) | 476 | 137,803 | (629) | 137,174 |
Transfers to stage 1 | 1,467 | (15) | 1,452 | (1,467) | 15 | (1,452) | - | - | - | - | - | - |
Transfers to stage 2 | (2,735) | 10 | (2,725) | 2,779 | (9) | 2,770 | (44) | (1) | (45) | - | - | - |
Transfers to stage 3 | (5) | (7) | (12) | (267) | 7 | (260) | 272 | - | 272 | - | - | - |
Net change in exposures | (885) | (8) | (893) | (820) | - | (820) | (139) | - | (139) | (1,844) | (8) | (1,852) |
Net remeasurement from stage changes | - | 2 | 2 | - | (7) | (7) | - | (1) | (1) | - | (6) | (6) |
Changes in risk parameters | - | 12 | 12 | - | 11 | 11 | - | (52) | (52) | - | (29) | (29) |
Write-offs | - | - | - | - | - | - | (2) | 2 | - | (2) | 2 | - |
Interest due but unpaid | - | - | - | - | - | - | 15 | (15) | - | 15 | (15) | - |
Discount unwind | - | - | - | - | - | - | - | 3 | 3 | - | 3 | 3 |
Exchange translation differences and other movements | (1,598) | 13 | (1,585) | (22) | (12) | (34) | (62) | 56 | (6) | (1,682) | 57 | (1,625) |
As at 30 June 2023 | 131,606 | (53) | 131,553 | 1,616 | (12) | 1,604 | 1,068 | (560) | 508 | 134,290 | (625) | 133,665 |
Income statement ECL (charge)/release | 6 | 4 | (53) | (43) | ||||||||
Recoveries of amounts previously written off | - | - | 35 | 35 | ||||||||
Total credit impairment (charge)/release | 6 | 4 | (18) | (8) | ||||||||
1 The gross balance includes the notional amount of off balance sheet instruments
Page 20
Consumer, Private and Business Banking - Unsecured (reviewed)
Amortised cost and FVOCI | Stage 1 | Stage 2 | Stage 3 | Total | ||||||||
Gross balance1 $million | Total credit impair ment$million | Net$million | Gross balance1 $million | Total credit impair ment$million | Net$million | Gross balance1 $million | Total credit impair ment$million | Net$million | Gross balance1 $million | Total credit impair ment$million | Net$million | |
As at 1 January 2022 | 54,260 | (281) | 53,979 | 990 | (153) | 837 | 475 | (280) | 195 | 55,725 | (714) | 55,011 |
Transfers to stage 1 | 1,718 | (286) | 1,432 | (1,711) | 286 | (1,425) | (7) | - | (7) | - | - | - |
Transfers to stage 2 | (2,244) | 81 | (2,163) | 2,259 | (81) | 2,178 | (15) | - | (15) | - | - | - |
Transfers to stage 3 | (43) | (1) | (44) | (417) | 150 | (267) | 460 | (149) | 311 | - | - | - |
Net change in exposures | 5,979 | (41) | 5,938 | (666) | 18 | (648) | (137) | - | (137) | 5,176 | (23) | 5,153 |
Net remeasurement from stage changes | - | 31 | 31 | - | (81) | (81) | - | (21) | (21) | - | (71) | (71) |
Changes in risk parameters | - | 67 | 67 | - | (180) | (180) | - | (251) | (251) | - | (364) | (364) |
Write-offs | - | - | - | - | - | - | (457) | 457 | - | (457) | 457 | - |
Interest due but unpaid | - | - | - | - | - | - | (27) | 27 | - | (27) | 27 | - |
Discount unwind | - | - | - | - | - | - | - | 26 | 26 | - | 26 | 26 |
Exchange translation differences and other movements | (1,793) | 77 | (1,716) | (47) | (60) | (107) | 134 | (33) | 101 | (1,706) | (16) | (1,722) |
As at 31 December 2022 | 57,877 | (353) | 57,524 | 408 | (101) | 307 | 426 | (224) | 202 | 58,711 | (678) | 58,033 |
Income statement ECL (charge)/release | 57 | (243) | (272) | (458) | ||||||||
Recoveries of amounts previously written off | - | - | 190 | 190 | ||||||||
Total credit impairment (charge)/release | 57 | (243) | (82) | (268) | ||||||||
As at 1 January 2023 | 57,877 | (353) | 57,524 | 408 | (101) | 307 | 426 | (224) | 202 | 58,711 | (678) | 58,033 |
Transfers to stage 1 | 444 | (109) | 335 | (443) | 109 | (334) | (1) | - | (1) | - | - | - |
Transfers to stage 2 | (1,057) | 26 | (1,031) | 1,066 | (27) | 1,039 | (9) | 1 | (8) | - | - | - |
Transfers to stage 3 | (19) | 8 | (11) | (241) | 80 | (161) | 260 | (88) | 172 | - | - | - |
Net change in exposures | 1,236 | (34) | 1,202 | (239) | 8 | (231) | (93) | - | (93) | 904 | (26) | 878 |
Net remeasurement from stage changes | - | 18 | 18 | - | (65) | (65) | - | (11) | (11) | - | (58) | (58) |
Changes in risk parameters | - | 47 | 47 | - | - | - | - | (147) | (147) | - | (100) | (100) |
Write-offs | - | - | - | - | - | - | (297) | 297 | - | (297) | 297 | - |
Interest due but unpaid | - | - | - | - | - | - | 39 | (39) | - | 39 | (39) | - |
Discount unwind | - | - | - | - | - | - | - | 9 | 9 | - | 9 | 9 |
Exchange translation differences and other movements | (1,113) | 109 | (1,004) | (9) | (107) | (116) | 62 | (19) | 43 | (1,060) | (17) | (1,077) |
As at 30 June 2023 | 57,368 | (288) | 57,080 | 542 | (103) | 439 | 387 | (221) | 166 | 58,297 | (612) | 57,685 |
Income statement ECL (charge)/release | 31 | (57) | (158) | (184) | ||||||||
Recoveries of amounts previously written off | - | - | 82 | 82 | ||||||||
Total credit impairment (charge)/release | 31 | (57) | (76) | (102) | ||||||||
1 The gross balance includes the notional amount of off balance sheet instruments
Page 21
Analysis of Stage 2 balances
The table below analyses total stage 2 gross on-and off-balance sheet exposures and associated expected credit provisions by the key significant increase in Credit Risk (SICR) driver that caused the exposures to be classified as stage 2 as at 30 June 2023 and 31 December 2022 for each segment.
Where multiple drivers apply, the exposure is allocated based on the table order. For example, a loan may have breached the PD thresholds and could also be on non-purely precautionary early alert; in this instance, the exposure is reported under 'Increase in PD'.
30.06.23 | |||||||||||||||
Corporate, Commercial & Institutional Banking | Consumer, Private &Business Banking | Ventures | Central & other items | Total | |||||||||||
Gross$million | ECL$million | Cove-rage% | Gross$million | ECL$million | Cove-rage% | Gross$million | ECL$million | Cove-rage% | Gross$million | ECL$million | Cove-rage% | Gross$million | ECL$million | Cove-rage% | |
Increase in PD | 8,732 | 146 | 1.7% | 1,653 | 101 | 6.1% | 93 | 5 | 5.4% | 2,649 | 19 | 0.7% | 13,127 | 271 | 2.1% |
Non-purely precautionary early alert | 3,158 | 14 | 0.4% | 51 | 1 | 2.0% | - | - | 0.0% | 12 | - | 0.0% | 3,221 | 15 | 0.5% |
Higher risk (CG12) | 1,269 | 84 | 6.6% | 19 | - | 0.0% | - | - | 0.0% | 1,943 | 26 | 1.3% | 3,231 | 110 | 3.4% |
Sub-investment grade | - | - | 0.0% | - | - | 0.0% | - | - | 0.0% | - | - | 0.0% | - | - | 0.0% |
Top up/Sell down (Private Banking) | - | - | 0.0% | 166 | - | 0.0% | - | - | 0.0% | - | - | 0.0% | 166 | - | 0.0% |
Others | 1,903 | 13 | 0.7% | 128 | 3 | 2.3% | - | - | 0.0% | 326 | 3 | 0.9% | 2,357 | 19 | 0.8% |
30 days past due | 1 | - | 0.0% | 141 | 10 | 7.1% | 3 | - | 0.0% | - | - | 0.0% | 145 | 10 | 6.9% |
Management overlay | - | 99 | 0.0% | - | - | 0.0% | - | - | 0.0% | - | - | 0.0% | - | 99 | 0.0% |
Total stage 2 | 15,063 | 356 | 2.4% | 2,158 | 115 | 5.3% | 96 | 5 | 5.2% | 4,930 | 48 | 1.0% | 22,247 | 524 | 2.4% |
31.12.22 | |||||||||||||||
Corporate, Commercial &Institutional Banking | Consumer, Private &Business Banking | Ventures | Central & other items | Total | |||||||||||
Gross$million | ECL$million | Cover-age% | Gross$million | ECL$million | Cove-rage% | Gross$million | ECL$million | Cover-age% | Gross$million | ECL$million | Cove-rage% | Gross$million | ECL$million | Cove-rage% | |
Increase in PD | 13,620 | 192 | 1.4% | 1,389 | 89 | 6.4% | - | - | 0.0% | 2,973 | 11 | 0.4% | 17,982 | 292 | 1.6% |
Non-purely precautionaryearly alert | 3,272 | 12 | 0.4% | 35 | - | 0.0% | - | - | 0.0% | 5 | - | 0.0% | 3,312 | 12 | 0.4% |
Higher risk (CG12) | 653 | 30 | 4.6% | 18 | 1 | 5.6% | - | - | 0.0% | 2,534 | 69 | 2.7% | 3,205 | 100 | 3.1% |
Sub-investment grade | - | - | 0.0% | - | - | 0.0% | - | - | 0.0% | 95 | 11 | 11.6% | 95 | 11 | 11.6% |
Top up/Sell down (Private Banking) | - | - | 0.0% | 111 | - | 0.0% | - | - | 0.0% | - | - | 0.0% | 111 | - | 0.0% |
Others | 2,603 | 41 | 1.6% | 122 | 4 | 3.3% | - | - | 0.0% | 451 | 7 | 1.6% | 3,176 | 52 | 1.6% |
30 days past due | - | - | 0.0% | 146 | 12 | 8.2% | 47 | 3 | 6.4% | - | - | 0.0% | 193 | 15 | 7.8% |
Management overlay | - | 136 | 0.0% | - | 12 | 0.0% | - | - | 0.0% | - | - | 0.0% | - | 148 | 0.0% |
Total stage 2 | 20,148 | 411 | 2.0% | 1,821 | 118 | 6.5% | 47 | 3 | 6.4% | 6,058 | 98 | 1.6% | 28,074 | 630 | 2.2% |
The majority of exposures and the associated expected credit loss provisions continue to be in stage 2 due to increases in the probability of default.
The amount of exposures in CCIB placed on non-purely precautionary early alert and PD have decreased from exposure reductions.
In CPBB, 7 per cent of the provisions held against stage 2 remains broadly stable.
'Others' primarily incorporates exposures where origination data is incomplete and the exposures are allocated into stage 2.
Page 22
Credit impairment charge (reviewed)
Ongoing credit impairment was a net charge of $172 million (30 June 2022: $264 million). Stage 3 was a charge of $139 million (30 June 2022: $275 million). Stage 1 and 2 were a charge of $33 million (30 June 2022: release of $11 million).
Corporate, Commercial and Institutional Banking (CCIB) Stage 1 and 2 impairments of $33 million (30 June 2022: release of $44 million) were driven by Pakistan sovereign clients, model methodology updates, and net $6 million charge due to the China commercial real estate portfolio. Stage 3 impairment is $36 million from China commercial real estate clients, $26 million in Nigeria from client downgrades to stage 3 due to Foreign exchange availability offset by large number of notable releases in H1 2023.
CPBB loan impairment charge was $108 million (30 June 2022: $79 million). Stage 1 and 2 charge was low at $15 million due to $34 million release from non linearity Post Model Adjustments from 2022 as Monte Carlo results showed that modelled non linearity was sufficient, $21 million release in H1 2023 overlays of which Bahrain is $16 million from the full release of COVID-19 overlay, and release from macroeconomic variable updates to Ant Financial and model refresh in Bangladesh. Stage 3 was $93 million, which was driven by charge offs in China, Hong Kong and India partly offset by $5 million of overlay releases mainly from the Bahrain COVID-19 overlay.
Ventures was a charge of $23 million (30 June 2022: $3 million) due to book growth in Mox Bank and Trust Bank Singapore.
Central and other items Stage 1 and 2 impairments was a $27 million release (30 June 2022: release of $13 million), primarily due to Pakistan Sovereign exposure reductions.
Restructuring P&L was a net release of $11 million (30 June 2022: release of $1 million).
30.06.23 | 30.06.22¹ | |||||
Stage 1 & 2$million | Stage 3$million | Total$million | Stage 1 & 2$million | Stage 3$million | Total$million | |
Ongoing business portfolio | ||||||
Corporate, Commercial & Institutional Banking | 33 | 36 | 69 | (44) | 238 | 194 |
Consumer, Private & Business Banking | 15 | 93 | 108 | 43 | 36 | 79 |
Ventures | 12 | 11 | 23 | 3 | - | 3 |
Central & other items | (27) | (1) | (28) | (13) | 1 | (12) |
Credit impairment charge/(release) | 33 | 139 | 172 | (11) | 275 | 264 |
Restructuring business portfolio | ||||||
Others | (2) | (9) | (11) | (3) | 2 | (1) |
Credit impairment charge/(release) | (2) | (9) | (11) | (3) | 2 | (1) |
Total credit impairment charge/(release) | 31 | 130 | 161 | (14) | 277 | 263 |
1 Underlying credit impairment has been restated for the removal of (i) exit markets and businesses in AME and (ii) Aviation Finance. No change in statutory credit impairment
Problem credit management and provisioning (reviewed)
Forborne and other modified loans by client segment
A forborne loan arises when a concession has been made to the contractual terms of a loan in response to a customer's financial difficulties.
Net forborne loans decreased by $150 million to $975 million (31 December 2022: $1,125 million), mainly due to repayments of which $100 million was in performing forborne loans and $50 million in Stage 3.
Page 23
The table below presents loans with forbearance measures by segment.
Amortised cost | 30.06.23 | 31.12.22 | ||||||
Corporate, Commercial & Institutional Banking$million | Consumer, Private & Business Banking$million | Ventures$million | Total$million | Corporate, Commercial & Institutional Banking$million | Consumer, Private & Business Banking$million | Ventures$million | Total$million | |
All loans with forbearance measures | 2,108 | 321 | - | 2,429 | 2,129 | 377 | - | 2,506 |
Credit impairment (stage 1 and 2) | (1) | (2) | - | (3) | (1) | - | - | (1) |
Credit impairment (stage 3) | (1,334) | (117) | - | (1,451) | (1,253) | (127) | - | (1,380) |
Net carrying value | 773 | 202 | - | 975 | 875 | 250 | - | 1,125 |
Included within the above table | ||||||||
Gross performing forborne loans | 7 | 47 | - | 54 | 89 | 63 | - | 152 |
Modification of terms and conditions1 | 7 | 47 | - | 54 | 89 | 63 | - | 152 |
Refinancing2 | - | - | - | - | - | - | - | - |
Impairment provisions | (1) | (2) | - | (3) | (1) | - | - | (1) |
Modification of terms and conditions1 | (1) | (2) | - | (3) | (1) | - | - | (1) |
Refinancing2 | - | - | - | - | - | - | - | - |
Net performing forborne loans | 6 | 45 | - | 51 | 88 | 63 | - | 151 |
Collateral | - | 42 | - | 42 | 7 | 60 | - | 67 |
Gross non-performing forborne loans | 2,101 | 274 | - | 2,375 | 2,040 | 314 | - | 2,354 |
Modification of terms and conditions1 | 2,057 | 274 | - | 2,331 | 1,997 | 314 | - | 2,311 |
Refinancing2 | 44 | - | - | 44 | 43 | - | - | 43 |
Impairment provisions | (1,334) | (117) | - | (1,451) | (1,253) | (127) | - | (1,380) |
Modification of terms and conditions1 | (1,290) | (117) | - | (1,407) | (1,210) | (127) | - | (1,337) |
Refinancing2 | (44) | - | - | (44) | (43) | - | - | (43) |
Net non-performing forborne loans | 767 | 157 | - | 924 | 787 | 187 | - | 974 |
Collateral | 265 | 50 | - | 315 | 243 | 68 | - | 311 |
1 Modification of terms is any contractual change apart from refinancing, as a result of credit stress of the counterparty, i.e. interest reductions, loan covenant waivers
2 Refinancing is a new contract to a borrower in credit stress, such that they are refinanced and can pay other debt contracts that they were unable to honour
Forborne and other modified loans by region
Net forborne loans decreased by $150 million to $975 million (31 December 2022: $1,125 million), mainly in Asia and the Europe and Americas regions for performing forborne loans, and in the Africa and the Middle East and the Europe and Americas regions for Stage 3 forborne loans.
Amortised cost | 30.06.23 | 31.12.22 | ||||||
Asia$million | Africa & Middle East$million | Europe & Americas$million | Total$million | Asia$million | Africa & Middle East$million | Europe & Americas$million | Total$million | |
Performing forborne loans | 43 | 8 | - | 51 | 129 | 9 | 13 | 151 |
Stage 3 forborne loans | 623 | 104 | 197 | 924 | 568 | 144 | 262 | 974 |
Net forborne loans | 666 | 112 | 197 | 975 | 697 | 153 | 275 | 1,125 |
Credit-impaired (stage 3) loans and advances by client segment (reviewed)
Gross stage 3 loans for the Group decreased by $0.2 billion to $7.7 billion (31 December 2022: $7.8 billion).
In CCIB, stage 3 loans decreased by $0.1 billion to $6 billion (31 December 2022: $6.1 billion) due to repayments, which was offset by stage 3 inflows, particularly in one China commercial real estate client and downgrade of clients in Nigeria due to past dues exceeding 90 days for our clients owing to nonavailability of USD.
CPBB stage 3 loans were materially unchanged at $1.5 billion (31 December 2022: $1.5 billion).
Stage 3 cover ratio (reviewed)
The stage 3 cover ratio measures the proportion of stage 3 impairment provisions to gross stage 3 loans, and is a metric commonly used in considering impairment trends. This metric does not allow for variations in the composition of stage 3 loans and should be used in conjunction with other Credit Risk information provided, including the level of collateral cover.
The balance of stage 3 loans not covered by stage 3 impairment provisions represents the adjusted value of collateral held and the net outcome of any workout or recovery strategies. Collateral provides risk mitigation to some degree in all client segments and supports the credit quality and cover ratio assessments post impairment provisions.
Page 24
Further information on collateral is provided in the Credit Risk mitigation section.
The CCIB stage 3 cover ratio increased by 2 per cent to 62 per cent (31 December 2022: 60 per cent) as a result of new and incremental stage 3 ECL provisions taken in H1 2023.
The CPBB stage 3 cover ratio remains broadly stable at 54 per cent (31 December 2022: 53 per cent). The cover ratio after collateral increased to 95 per cent (31 December 2022: 91 per cent) mainly due to India Mortgage portfolio.
Amortised cost | 30.06.23 | 31.12.22 | ||||||||
Corporate, Commercial & Institutional Banking$million | Consumer, Private & Business Banking$million | Ventures$million | Central & Others$million | Total$million | Corporate, Commercial & Institutional Banking$million | Consumer, Private & Business Banking$million | Ventures$million | Central & Others$million | Total$million | |
Gross credit-impaired | 6,038 | 1,450 | 6 | 193 | 7,687 | 6,143 | 1,453 | 1 | 248 | 7,845 |
Credit impairment provisions | (3,724) | (779) | (5) | (12) | (4,520) | (3,662) | (776) | (1) | (18) | (4,457) |
Net credit-impaired | 2,314 | 671 | 1 | 181 | 3,167 | 2,481 | 677 | - | 230 | 3,388 |
Cover ratio | 62% | 54% | 83% | 6% | 59% | 60% | 53% | 100% | 7% | 57% |
Collateral ($ million) | 843 | 605 | - | - | 1,448 | 956 | 543 | - | - | 1,499 |
Cover ratio (after collateral) | 76% | 95% | 83% | 6% | 78% | 75% | 91% | 100% | 7% | 76% |
Credit-impaired (stage 3) loans and advances by geographic region
Stage 3 gross loans decreased by $0.2 billion to $7.7 billion (31 December 2022: $7.8 billion). The decrease was primarily driven by new inflows in Asia offset by repayments, write offs and new downgrades in Africa and the Middle East.
Amortised cost | 30.06.23 | 31.12.22 | ||||||
Asia$million | Africa & Middle East$million | Europe & Americas$million | Total$million | Asia$million | Africa & Middle East$million | Europe & Americas$million | Total$million | |
Gross credit-impaired | 4,511 | 2,941 | 235 | 7,687 | 4,562 | 2,725 | 558 | 7,845 |
Credit impairment provisions | (2,566) | (1,747) | (207) | (4,520) | (2,483) | (1,765) | (209) | (4,457) |
Net credit-impaired | 1,945 | 1,194 | 28 | 3,167 | 2,079 | 960 | 349 | 3,388 |
Cover ratio | 57% | 59% | 88% | 59% | 54% | 65% | 37% | 57% |
Credit risk mitigation
Potential credit losses from any given account, customer or portfolio are mitigated using a range of tools such as collateral, netting arrangements, credit insurance and credit derivatives, taking into account expected volatility and guarantees.
The reliance that can be placed on these mitigants is carefully assessed in light of issues such as legal certainty and enforceability, market valuation correlation and counterparty risk of the guarantor.
A secured loan is one where the borrower pledges an asset as collateral of which the Group is able to take possession in the event that the borrower defaults.
The unadjusted market value of collateral across all asset types, in respect of CCIB, without adjusting for over collateralisation, was $319 billion (31 December 2022: $345 billion).
The collateral values in the table below (which covers loans and advances to banks and customers, excluding those held at fair value through profit or loss) are adjusted where appropriate in accordance with our risk mitigation policy and for the effect of over-collateralisation. The extent of overcollateralization has been determined with reference to both the drawn and undrawn components of exposure as this best reflects the effect of collateral and other credit enhancements on the amounts arising from expected credit losses. The value of collateral reflects management's best estimate and is backtested against our prior experience. On average, across all types of non-cash collateral, the value ascribed is approximately half of its current market value.
CCIB collateral decreased by $5.3 billion to $32.9 billion (31 December 2022: $38.2 billion) and CPBB collateral decreased by $3.6 billion to $88.7 billion (31 December 2022: $92.4 billion) due to exposure reductions from the mortgage portfolio.
Stage 2 collateral reduced by $0.7 billion to $4.3 billion (31 December 2022: $5 billion) due to a decrease in CCIB loans balances, which was partly offset by an increase in Secured wealth balances in CPBB.
Total collateral for Central and other items decreased by $8.6 billion to $2.6 billion (31 December 2022: $11.2 billion) due to a decrease in lending under reverse repurchase agreements.
Page 25
Collateral held on loans and advances
The table below details collateral held against exposures, separately disclosing stage 2 and stage 3 exposure and corresponding collateral.
Amortised cost | 30.06.23 | ||||||||
Net amount outstanding | Collateral | Net exposure | |||||||
Total$million | Stage 2 financialassets$million | Credit-impaired financialassets (S3)$million | Total2 $million | Stage 2 financialassets$million | Credit-impaired financialassets (S3)$million | Total$million | Stage 2 financialassets$million | Credit-impaired financialassets (S3)$million | |
Corporate, Commercial & Institutional Banking¹ | 172,769 | 8,332 | 2,389 | 32,865 | 3,138 | 843 | 139,904 | 5,194 | 1,546 |
Consumer, Private &Business Banking | 126,970 | 1,896 | 671 | 88,704 | 1,163 | 605 | 38,266 | 733 | 66 |
Ventures | 949 | 35 | 1 | - | - | - | 949 | 35 | 1 |
Central & other items | 34,051 | - | 181 | 2,576 | - | - | 31,475 | - | 181 |
Total | 334,739 | 10,263 | 3,242 | 124,145 | 4,301 | 1,448 | 210,594 | 5,962 | 1,794 |
Amortised cost | 31.12.22 | ||||||||
Net amount outstanding | Collateral | Net exposure | |||||||
Total$million | Stage 2 financialassets$million | Credit-impaired financialassets (S3)$million | Total2 $million | Stage 2 financialassets$million | Credit-impaired financialassets (S3)$million | Total$million | Stage 2 financialassets$million | Credit-impaired financialassets (S3)$million | |
Corporate, Commercial & Institutional Banking1 | 179,150 | 11,366 | 2,526 | 38,151 | 3,973 | 956 | 140,999 | 7,393 | 1,570 |
Consumer, Private &Business Banking | 130,955 | 1,550 | 677 | 92,350 | 1,019 | 543 | 38,605 | 531 | 134 |
Ventures | 698 | 17 | - | - | - | - | 698 | 17 | - |
Central & other items | 39,363 | - | 230 | 11,214 | - | - | 28,149 | - | 230 |
Total | 350,166 | 12,933 | 3,433 | 141,715 | 4,992 | 1,499 | 208,451 | 7,941 | 1,934 |
1 Includes loans and advances to banks
2 Adjusted for over-collateralisation based on the drawn and undrawn components of exposures
Collateral - CCIB (reviewed)
Collateral taken for longer-term and sub-investment grade corporate loans improved to 55 per cent (31 December 2022: 53 per cent).
Our underwriting standards encourage taking specific charges on assets and we consistently seek high-quality, investment-grade collateral.
78 per cent of tangible collateral excluding reverse repurchase agreements held comprises physical assets or is property based, and investment securities. Overall collateral decreased by $5.3 billion to $33 billion (31 December 2022: $38 billion) due to a decrease in reverse repurchase agreements.
Non-tangible collateral, such as guarantees and standby letters of credit, is also held against corporate exposures, although the financial effect of this type of collateral is less significant in terms of recoveries. However, this is considered when determining the probability of default and other credit-related factors. Collateral is also held against off balance sheet exposures, including undrawn commitments and trade-related instruments.
Page 26
Corporate, Commercial & Institutional Banking
Amortised cost | 30.06.23$million | 31.12.22$million |
Maximum exposure | 172,769 | 179,150 |
Property | 9,980 | 10,152 |
Plant, machinery and other stock | 1,008 | 1,168 |
Cash | 2,422 | 2,797 |
Reverse repos | 9,958 | 14,305 |
AAA | 13 | - |
A- to AA+ | 7,421 | 10,551 |
BBB- to BBB+ | 864 | 1,485 |
Lower than BBB- | 176 | - |
Unrated | 1,484 | 2,269 |
Financial guarantees and insurance | 4,932 | 5,096 |
Commodities | 45 | 37 |
Ships and aircraft | 4,520 | 4,596 |
Total value of collateral1 | 32,865 | 38,151 |
Net exposure | 139,904 | 140,999 |
1 Adjusted for over-collateralisation based on the drawn and undrawn components of exposures
Collateral - CPBB (reviewed)
In CPBB, fully secured products remain at 86 per cent of the total portfolio (31 December 2022: 86 per cent).
The following table presents an analysis of loans to individuals by product; split between fully secured, partially secured and unsecured.
Amortised cost | 30.06.23 | 31.12.22 | ||||||
Fully secured$million | Partially secured$million | Unsecured$million | Total$million | Fully secured$million | Partially secured$million | Unsecured$million | Total$million | |
Maximum exposure | 108,888 | 352 | 17,731 | 126,970 | 112,556 | 449 | 17,950 | 130,955 |
Loans to individuals | ||||||||
Mortgages | 83,795 | - | - | 83,795 | 87,212 | - | - | 87,212 |
CCPL | 271 | - | 16,424 | 16,695 | 221 | - | 16,711 | 16,932 |
Auto | 398 | - | - | 398 | 502 | - | - | 502 |
Secured wealth products | 20,550 | - | - | 20,550 | 19,551 | - | - | 19,551 |
Other | 3,873 | 352 | 1,307 | 5,532 | 5,070 | 449 | 1,239 | 6,758 |
Total collateral¹ | 88,704 | 92,350 | ||||||
Net exposure2 | 38,266 | 38,605 | ||||||
Percentage of total loans | 86% | 0% | 14% | 86% | 0% | 14% | ||
1 Collateral values are adjusted where appropriate in accordance with our risk mitigation policy and for the effect of over-collateralisation
2 Amounts net of ECL
Mortgage loan-to-value ratios by geography (reviewed)
Loan-to-value (LTV) ratios measure the ratio of the current mortgage outstanding to the current fair value of the properties on which they are secured.
In a majority of mortgages, the value of property held as security significantly exceeds principal outstanding of the mortgage loans. The average LTV of the overall mortgage portfolio remains stable at 45.1 per cent (31 December 2022: 44.7 per cent). Hong Kong, which represents 40.1 per cent of the residential mortgage portfolio, has an average LTV of 49.9 per cent (31 December 2022: 52.6 per cent). The decrease of Hong Kong average LTV is due to a recovery of the Property Price Index. All of our other key markets continue to have low portfolio LTVs (Korea, Singapore and Taiwan at 40.5 per cent, 42.8 per cent and 47.0 per cent respectively). Korea average LTV increase is due to government relaxations whereby highly regulated areas have eased up to accommodate customers with higher LTV.
Page 27
An analysis of LTV ratios by geography for the mortgage portfolio is presented in the table below.
Amortised cost | 30.06.23 | |||
Asia%Gross | Africa &Middle East%Gross | Europe &Americas%Gross | Total%Gross | |
Less than 50 per cent | 60.6 | 48.1 | 26.2 | 59.6 |
50 per cent to 59 per cent | 15.5 | 17.9 | 17.0 | 15.5 |
60 per cent to 69 per cent | 9.7 | 13.8 | 35.5 | 10.3 |
70 per cent to 79 per cent | 7.9 | 12.2 | 16.3 | 8.2 |
80 per cent to 89 per cent | 3.9 | 5.0 | 3.4 | 3.9 |
90 per cent to 99 per cent | 2.1 | 1.7 | 1.2 | 2.1 |
100 per cent and greater | 0.3 | 1.3 | 0.4 | 0.4 |
Average portfolio loan-to-value | 44.8 | 52.3 | 57.3 | 45.1 |
Loans to individuals - mortgages ($million) | 80,623 | 1,256 | 1,916 | 83,795 |
Amortised cost | 31.12.22 | |||
Asia1 %Gross | Africa &Middle East%Gross | Europe &Americas%Gross | Total%Gross | |
Less than 50 per cent | 60.9 | 43.0 | 32.2 | 60.1 |
50 per cent to 59 per cent | 15.5 | 18.2 | 19.2 | 15.6 |
60 per cent to 69 per cent | 9.8 | 16.8 | 31.3 | 10.2 |
70 per cent to 79 per cent | 6.5 | 12.8 | 14.8 | 6.7 |
80 per cent to 89 per cent | 3.6 | 5.1 | 1.1 | 3.6 |
90 per cent to 99 per cent | 2.5 | 2.0 | - | 2.4 |
100 per cent and greater | 1.4 | 2.2 | 1.3 | 1.4 |
Average portfolio loan-to-value | 44.4 | 54.3 | 56.6 | 44.7 |
Loans to individuals - mortgages ($million) | 83,954 | 1,388 | 1,870 | 87,212 |
Collateral and other credit enhancements possessed or called upon (reviewed)
The Group obtains assets by taking possession of collateral or calling upon other credit enhancements (such as guarantees). Repossessed properties are sold in an orderly fashion. Where the proceeds are in excess of the outstanding loan balance the excess is returned to the borrower.
Certain equity securities acquired may be held by the Group for investment purposes and are classified as fair value through profit or loss, and the related loan written off. The carrying value of collateral possessed and held by the Group is $9.7 million (31 December 2022: $14.9 million).
30.06.23$million | 31.12.22$million | |
Property, plant and equipment | 5.0 | 9.6 |
Guarantees | 4.7 | 5.3 |
Total | 9.7 | 14.9 |
Other Credit Risk mitigation (reviewed)
Other forms of credit risk mitigation are set out below.
Credit default swaps
The Group has entered into credit default swaps for portfolio management purposes, referencing loan assets with a notional value of $5.1 billion (31 December 2022: $5.1 billion). These credit default swaps are accounted for as financial guarantees as per IFRS 9 as they will only reimburse the holder for an incurred loss on an underlying debt instrument. The Group continues to hold the underlying assets referenced in the credit default swaps and it continues to be exposed to related Credit Risk and Foreign Exchange Rate Risk on these assets.
Credit linked notes
The Group has issued credit linked notes for portfolio management purposes, referencing loan assets with a notional value of $19 billion (31 December 2022: $13.5 billion). The Group continues to hold the underlying assets for which the credit linked notes provide mitigation. The credit linked notes are recognised as a financial liability at amortised cost on the balance sheet.
Page 28
Derivative financial instruments
The Group enters into master netting agreements, which in the event of default result in a single amount owed by or to the counterparty through netting the sum of the positive and negative mark-to-market values of applicable derivative transactions. Credit Risk mitigation for derivative financial instruments is set out below.
Off-balance sheet exposures
For certain types of exposure, such as letters of credit and guarantees, the Group obtains collateral such as cash depending on internal Credit Risk assessments, as well as in the case of letters of credit holding legal title to the underlying assets should a default take place.
Other portfolio analysis
This section provides maturity analysis by credit quality by industry and industry and retail products analysis by region.
Credit quality by industry
Loans and advances
This section provides an analysis of the Group's amortised cost portfolio by industry on a gross, total credit impairment and net basis.
From an industry perspective, gross loans and advances decreased by $20.6 billion to $296 billion (31 December 2022: $316 billion), of which $11 billion decrease was due to CCIB, $5.7 billion decrease was due to Central and other items segments and $3.8 billion decrease was due to CPBB.
Stage 1 loans decreased by $17.5 billion to $278 billion (31 December 2022: $295 billion), the reduction was driven by the following. $5 billion decrease from lending in Hong Kong and Korea. $4.2 billion decrease from CPBB mainly from the mortgage book in Hong Kong. This was aligned with the Hong Kong mortgage strategy refinements since late 2022 in consideration of the increasing interest rate environment. This was partly offset by a $0.8 billion increase in Secured wealth products in Singapore and Hong Kong. Credit Cards increased by $0.2 billion to $7.1 billion (31 December 2022: $6.9 billion) largely in Ventures. CCIB loans decreased by $7.5 billion to $110 billion (31 December 2022: $118 billion) due to exposure reductions in Financing, insurance and non-banking and in the Manufacturing sector.
Stage 2 loans decreased by $2.9 billion to $10.1 billion (31 December 2022: $13 billion) driven by CCIB due to reduction in exposures in the Commercial real estate ($1.8 billion), Mining and quarrying ($0.4 billion) and Food and household products ($0.3 billion).
Stage 3 loans reduced by $0.2 billion to $7.7 billion (31 December 2022: $7.8 billion) from CCIB due to a new inflow in the China commercial real estate portfolio which was offset by repayments. CPBB Stage 3 loans remained unchanged at $1.5 billion (31 December 2022: $1.5 billion).
Page 29
Amortised cost | 30.06.23 | |||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | |||||||||
Gross balance$million | Total credit impair-ment$million | Net carrying amount$million | Gross balance$million | Total credit impair-ment$million | Net carrying amount$million | Gross balance$million | Total credit impair-ment$million | Net carrying amount$million | Gross balance$million | Total credit impair-ment$million | Net carrying amount$million | |
Industry: | ||||||||||||
Energy | 9,347 | (6) | 9,341 | 501 | (22) | 479 | 977 | (569) | 408 | 10,825 | (597) | 10,228 |
Manufacturing | 19,111 | (10) | 19,101 | 1,027 | (16) | 1,011 | 790 | (494) | 296 | 20,928 | (520) | 20,408 |
Financing, insurance and non-banking | 29,037 | (7) | 29,030 | 453 | (3) | 450 | 199 | (185) | 14 | 29,689 | (195) | 29,494 |
Transport, telecom and utilities | 14,656 | (9) | 14,647 | 2,106 | (55) | 2,051 | 482 | (232) | 250 | 17,244 | (296) | 16,948 |
Food and household products | 8,399 | (6) | 8,393 | 371 | (14) | 357 | 414 | (252) | 162 | 9,184 | (272) | 8,912 |
Commercial real estate | 13,254 | (51) | 13,203 | 1,454 | (113) | 1,341 | 1,600 | (945) | 655 | 16,308 | (1,109) | 15,199 |
Mining and quarrying | 5,760 | (3) | 5,757 | 166 | (4) | 162 | 236 | (157) | 79 | 6,162 | (164) | 5,998 |
Consumer durables | 7,179 | (5) | 7,174 | 410 | (33) | 377 | 346 | (305) | 41 | 7,935 | (343) | 7,592 |
Construction | 2,235 | (1) | 2,234 | 638 | (9) | 629 | 411 | (335) | 76 | 3,284 | (345) | 2,939 |
Trading companies & distributors | 1,389 | - | 1,389 | 119 | (1) | 118 | 141 | (80) | 61 | 1,649 | (81) | 1,568 |
Government | 37,615 | (2) | 37,613 | 598 | (8) | 590 | 359 | (29) | 330 | 38,572 | (39) | 38,533 |
Other | 4,067 | (5) | 4,062 | 216 | (2) | 214 | 276 | (153) | 123 | 4,559 | (160) | 4,399 |
Retail Products: | ||||||||||||
Mortgage | 82,461 | (9) | 82,452 | 978 | (5) | 973 | 548 | (178) | 370 | 83,987 | (192) | 83,795 |
Credit Cards | 7,140 | (100) | 7,040 | 220 | (47) | 173 | 62 | (45) | 17 | 7,422 | (192) | 7,230 |
Personal loans and other unsecured lending | 10,231 | (192) | 10,039 | 304 | (59) | 245 | 277 | (147) | 130 | 10,812 | (398) | 10,414 |
Auto | 397 | - | 397 | 1 | - | 1 | - | - | - | 398 | - | 398 |
Secured wealth products | 20,087 | (40) | 20,047 | 403 | (6) | 397 | 457 | (351) | 106 | 20,947 | (397) | 20,550 |
Other | 5,346 | (5) | 5,341 | 145 | (3) | 142 | 112 | (63) | 49 | 5,603 | (71) | 5,532 |
Net carrying value (customers)¹ | 277,711 | (451) | 277,260 | 10,110 | (400) | 9,710 | 7,687 | (4,520) | 3,167 | 295,508 | (5,371) | 290,137 |
1 Includes reverse repurchase agreements and other similar secured lending held at amortised cost of $10,950 million
Page 30
Amortised cost | 31.12.22 | |||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | |||||||||
Gross balance$million | Total credit impair-ment$million | Net carrying amount$million | Gross balance$million | Total credit impair-ment$million | Net carrying amount$million | Gross balance$million | Total credit impair-ment$million | Net carrying amount$million | Gross balance$million | Total credit impair-ment$million | Net carrying amount$million | |
Industry: | ||||||||||||
Energy | 10,959 | (8) | 10,951 | 818 | (7) | 811 | 1,324 | (620) | 704 | 13,101 | (635) | 12,466 |
Manufacturing | 20,990 | (23) | 20,967 | 1,089 | (27) | 1,062 | 777 | (518) | 259 | 22,856 | (568) | 22,288 |
Financing, insurance and non-banking | 34,915 | (9) | 34,906 | 774 | (3) | 771 | 195 | (175) | 20 | 35,884 | (187) | 35,697 |
Transport, telecom and utilities | 14,273 | (22) | 14,251 | 2,347 | (36) | 2,311 | 669 | (224) | 445 | 17,289 | (282) | 17,007 |
Food and household products | 7,841 | (21) | 7,820 | 695 | (20) | 675 | 418 | (259) | 159 | 8,954 | (300) | 8,654 |
Commercial real estate | 12,393 | (43) | 12,350 | 3,217 | (195) | 3,022 | 1,305 | (761) | 544 | 16,915 | (999) | 15,916 |
Mining and quarrying | 5,482 | (4) | 5,478 | 537 | (5) | 532 | 248 | (174) | 74 | 6,267 | (183) | 6,084 |
Consumer durables | 6,403 | (4) | 6,399 | 420 | (17) | 403 | 358 | (307) | 51 | 7,181 | (328) | 6,853 |
Construction | 2,424 | (2) | 2,422 | 407 | (5) | 402 | 495 | (410) | 85 | 3,326 | (417) | 2,909 |
Trading companies & distributors | 2,205 | (1) | 2,204 | 170 | (2) | 168 | 122 | (80) | 42 | 2,497 | (83) | 2,414 |
Government | 42,825 | (2) | 42,823 | 603 | (1) | 602 | 168 | (15) | 153 | 43,596 | (18) | 43,578 |
Other | 4,684 | (4) | 4,680 | 278 | (5) | 273 | 312 | (137) | 175 | 5,274 | (146) | 5,128 |
Retail Products: | ||||||||||||
Mortgage | 85,859 | (12) | 85,847 | 996 | (7) | 989 | 556 | (180) | 376 | 87,411 | (199) | 87,212 |
Credit Cards | 6,912 | (103) | 6,809 | 155 | (46) | 109 | 59 | (44) | 15 | 7,126 | (193) | 6,933 |
Personal loans and other unsecured lending | 10,652 | (253) | 10,399 | 215 | (57) | 158 | 296 | (156) | 140 | 11,163 | (466) | 10,697 |
Auto | 501 | - | 501 | 1 | - | 1 | - | - | - | 502 | - | 502 |
Secured wealth products | 19,269 | (45) | 19,224 | 235 | (10) | 225 | 407 | (305) | 102 | 19,911 | (360) | 19,551 |
Other | 6,632 | (3) | 6,629 | 86 | (1) | 85 | 136 | (92) | 44 | 6,854 | (96) | 6,758 |
Net carrying value (customers)¹ | 295,219 | (559) | 294,660 | 13,043 | (444) | 12,599 | 7,845 | (4,457) | 3,388 | 316,107 | (5,460) | 310,647 |
1 Includes reverse repurchase agreements and other similar secured lending held at amortised cost of $24,498 million
Industry analysis of loans and advances by geographic region
This section provides an analysis of the Group's amortised cost loan portfolio, net of provisions, by industry and region.
In the CCIB and Central and other items segment, our largest industry exposures are to Government, Financing, insurance and non-banking and Manufacturing with each constituting at least 10 per cent of CCIB and Central and other items loans and advances to customers.
Financing, insurance and non-banking industry clients are mostly investment-grade institutions and this lending forms part of the liquidity management of the Group. The Manufacturing sector group is spread across a diverse range of industries, including automobiles and components, capital goods, pharmaceuticals, biotech and life sciences, technology hardware and equipment, chemicals, paper products and packaging, with lending spread over 3,326 clients.
The Mortgage portfolio continues to be the largest portion of the CPBB portfolio at $84 billion (31 December 2022: $87.4 billion), of which 96% is in our key markets in Asia, with Secured wealth at $20.9 billion (31 December 2022: $19.9 billion) and Personal Loans at $10.8 billion (31 December 2022: $11.2 billion).
In Asia, the Financing, insurance and non-banking industry decreased by $5.9 billion to $18.8 billion (31 December 2022: $24.7 billion), due to lower reverse repos. The Government sector decreased by $4.8 billion to $34.9 billion (31 December 2022: $39.7 billion) due to decreased lending to Hong Kong and Korea. The Energy sector decreased by $2.2 billion to $4 billion (31 December 2022: $6.3 billion) and the Manufacturing decreased by $1.5 billion to $15.9 billion (31 December 2022: $17.4 billion) due to exposure reductions.
Page 31
Amortisecd cost | 30.06.23 | 31.12.22 | ||||||
Asia$million | Africa & Middle East$million | Europe & Americas$million | Total$million | Asia$million | Africa & Middle East$million | Europe & Americas$million | Total$million | |
Industry: | ||||||||
Energy | 4,033 | 3,607 | 2,588 | 10,228 | 6,250 | 2,278 | 3,938 | 12,466 |
Manufacturing | 15,871 | 1,025 | 3,512 | 20,408 | 17,388 | 1,267 | 3,633 | 22,288 |
Financing, insurance and non-banking | 18,809 | 630 | 10,055 | 29,494 | 24,674 | 761 | 10,262 | 35,697 |
Transport, telecom and utilities | 11,690 | 3,004 | 2,254 | 16,948 | 10,841 | 3,567 | 2,599 | 17,007 |
Food and household products | 5,282 | 1,990 | 1,640 | 8,912 | 4,160 | 2,566 | 1,928 | 8,654 |
Commercial real estate | 12,104 | 623 | 2,472 | 15,199 | 13,179 | 598 | 2,139 | 15,916 |
Mining and quarrying | 3,666 | 483 | 1,849 | 5,998 | 3,785 | 390 | 1,909 | 6,084 |
Consumer durables | 6,768 | 349 | 475 | 7,592 | 5,860 | 461 | 532 | 6,853 |
Construction | 1,975 | 472 | 492 | 2,939 | 1,775 | 625 | 509 | 2,909 |
Trading companies and distributors | 1,424 | 104 | 40 | 1,568 | 2,281 | 101 | 32 | 2,414 |
Government | 34,888 | 3,416 | 229 | 38,533 | 39,713 | 3,759 | 106 | 43,578 |
Other | 3,073 | 641 | 685 | 4,399 | 3,636 | 702 | 790 | 5,128 |
Retail Products: | ||||||||
Mortgages | 80,623 | 1,256 | 1,916 | 83,795 | 83,954 | 1,388 | 1,870 | 87,212 |
Credit Cards | 6,962 | 268 | - | 7,230 | 6,642 | 291 | - | 6,933 |
Personal loans and other unsecured lending | 8,787 | 1,520 | 107 | 10,414 | 9,056 | 1,541 | 100 | 10,697 |
Auto | 374 | 24 | - | 398 | 469 | 33 | - | 502 |
Secured wealth products | 18,958 | 1,018 | 574 | 20,550 | 17,876 | 1,048 | 627 | 19,551 |
Other | 5,462 | 70 | - | 5,532 | 6,676 | 82 | - | 6,758 |
Net loans and advances to customers | 240,749 | 20,500 | 28,888 | 290,137 | 258,215 | 21,458 | 30,974 | 310,647 |
Net loans and advances to banks | 31,452 | 3,409 | 9,741 | 44,602 | 22,058 | 3,929 | 13,532 | 39,519 |
Vulnerable and Cyclical sector tables
Vulnerable and cyclical sectors are those that the Group considers to be most at risk from current economic stresses, including volatile energy and commodity prices, and we continue to monitor exposures to these sectors particularly carefully.
Total net on-balance sheet exposure to vulnerable and cyclical sectors decreased by $0.3 billion to $30.6 billion (31 December 2022: $30.9 billion) largely due to lower levels of drawn balances particularly in the Metals and Mining and Commercial real estate sector. The total net on and off-balance sheet exposure for CCIB increased by $6.3 billion to $258 billion (31 December 2022: $251 billion).
Stage 2 vulnerable and cyclical sector loans decreased by $2.5 billion to $3.1 billion (31 December 2022: $5.6 billion). This was primarily driven by a decrease in the Commercial real estate sector from outflows to stage 3 and repayments.
Stage 3 vulnerable and cyclical sector loans is broadly stable at $3.9 billion (31 December 2022: $4 billion). However, there was an increase from China commercial real estate clients which was offset by other smaller movements.
Page 32
Maximum exposure
Amortised Cost | 30.06.23 | ||||||
Maximum on Balance Sheet Exposure(net of credit impairment)$million | Collateral$million | Net OnBalance Sheet Exposure$million | Undrawn Commitments (net of credit impairment)$million | Financial Guarantees(net of credit impairment)$million | Net OffBalance Sheet Exposure$million | Total On & OffBalance SheetNet Exposure $million | |
Industry: | |||||||
Aviation1 | 2,939 | 1,351 | 1,588 | 1,664 | 637 | 2,301 | 3,889 |
Commodity Traders | 7,701 | 208 | 7,493 | 2,743 | 6,422 | 9,165 | 16,658 |
Metals & Mining | 3,652 | 309 | 3,343 | 3,933 | 1,419 | 5,352 | 8,695 |
Construction | 2,939 | 430 | 2,509 | 2,763 | 5,755 | 8,518 | 11,027 |
Commercial Real Estate | 15,199 | 6,707 | 8,492 | 5,788 | 335 | 6,123 | 14,615 |
Hotels & Tourism | 1,739 | 785 | 954 | 1,487 | 180 | 1,667 | 2,621 |
Oil & Gas | 6,831 | 636 | 6,195 | 7,410 | 6,290 | 13,700 | 19,895 |
Total | 41,000 | 10,426 | 30,574 | 25,788 | 21,038 | 46,826 | 77,400 |
Total Corporate, Commercial & Institutional Banking | 128,167 | 29,849 | 98,318 | 99,995 | 59,318 | 159,313 | 257,631 |
Total Group | 334,739 | 124,145 | 201,594 | 174,120 | 68,250 | 242,370 | 452,964 |
1 In addition, the Group has classified as HFS $3.3 billion of aircraft under operating leases and $0.9 billion of Aviation loans
Amortised Cost | 31.12.22 | ||||||
Maximum On Balance Sheet Exposure(net of credit impairment)$million | Collateral$million | Net OnBalance Sheet Exposure$million | Undrawn Commitments (net of credit impairment)$million | Financial Guarantees (net of credit impairment)$million | Net OffBalance Sheet Exposure$million | Total On & Off Balance SheetNet Exposure$million | |
Industry: | |||||||
Aviation1 | 3,072 | 1,597 | 1,475 | 1,762 | 632 | 2,394 | 3,869 |
Commodity Traders | 7,571 | 341 | 7,230 | 2,578 | 6,095 | 8,673 | 15,903 |
Metals & Mining | 4,754 | 321 | 4,433 | 3,425 | 852 | 4,277 | 8,710 |
Construction | 2,909 | 552 | 2,357 | 2,762 | 5,969 | 8,731 | 11,088 |
Commercial Real Estate | 15,916 | 7,205 | 8,711 | 6,258 | 224 | 6,482 | 15,193 |
Hotels & Tourism | 1,741 | 919 | 822 | 1,346 | 138 | 1,484 | 2,306 |
Oil & Gas | 6,643 | 806 | 5,837 | 7,630 | 7,158 | 14,788 | 20,625 |
Total | 42,606 | 11,741 | 30,865 | 25,761 | 21,068 | 46,829 | 77,694 |
Total Corporate, Commercial & Institutional Banking | 139,631 | 35,229 | 104,402 | 95,272 | 51,662 | 146,934 | 251,336 |
Total Group | 350,166 | 141,715 | 208,451 | 168,574 | 60,224 | 228,798 | 437,249 |
1 In addition to the aviation sector loan exposures, the Group owns $3.2 billion of aircraft under operating leases.
Loans and advances by stage
Amortised Cost | 30.06.23 | |||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | |||||||||
Gross Balance$million | Total Credit Impair-ment$million | Net Carrying Amount$million | Gross Balance$million | Total Credit Impair-ment$million | Net Carrying Amount$million | Gross Balance$million | Total Credit Impair-ment$million | Net Carrying Amount$million | Gross Balance$million | Total Credit Impair-ment$million | Net Carrying Amount$million | |
Industry: | ||||||||||||
Aviation1 | 2,706 | - | 2,706 | 185 | (2) | 183 | 61 | (11) | 50 | 2,952 | (13) | 2,939 |
Commodity Traders | 7,489 | (4) | 7,485 | 61 | (1) | 60 | 581 | (425) | 156 | 8,131 | (430) | 7,701 |
Metals & Mining | 3,261 | - | 3,261 | 238 | (2) | 236 | 284 | (129) | 155 | 3,783 | (131) | 3,652 |
Construction | 2,235 | (1) | 2,234 | 638 | (9) | 629 | 411 | (335) | 76 | 3,284 | (345) | 2,939 |
Commercial Real Estate | 13,254 | (51) | 13,203 | 1,454 | (113) | 1,341 | 1,600 | (945) | 655 | 16,308 | (1,109) | 15,199 |
Hotels & Tourism | 1,555 | (2) | 1,553 | 83 | (1) | 82 | 130 | (26) | 104 | 1,768 | (29) | 1,739 |
Oil & Gas | 5,944 | (10) | 5,934 | 477 | (10) | 467 | 824 | (394) | 430 | 7,245 | (414) | 6,831 |
Total | 36,444 | (68) | 36,376 | 3,136 | (138) | 2,998 | 3,891 | (2,265) | 1,626 | 43,471 | (2,471) | 41,000 |
Total Corporate, Commercial & Institutional Banking | 118,179 | (105) | 118,074 | 8,059 | (280) | 7,779 | 6,038 | (3,724) | 2,314 | 132,276 | (4,109) | 128,167 |
Total Group | 321,691 | (457) | 321,234 | 10,675 | (412) | 10,260 | 7,765 | (4,523) | 3,234 | 340,131 | (5,392) | 334,739 |
1 In addition, the Group has classified as HFS $3.3 billion of aircraft under operating leases and $0.9 billion of Aviation loans
Page 33
Amortised Cost | 31.12.22 | |||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | |||||||||
Gross Balance$million | Total Credit Impair-ment$million | Net Carrying Amount$million | Gross Balance$million | Total Credit Impair-ment$million | Net Carrying Amount$million | Gross Balance$million | Total Credit Impair-ment$million | Net Carrying Amount$million | Gross Balance$million | Total Credit Impair-ment$million | Net Carrying Amount$million | |
Industry: | ||||||||||||
Aviation1 | 2,377 | (1) | 2,376 | 573 | - | 573 | 155 | (32) | 123 | 3,105 | (33) | 3,072 |
Commodity Traders | 7,187 | (6) | 7,181 | 138 | (2) | 136 | 689 | (435) | 254 | 8,014 | (443) | 7,571 |
Metals & Mining | 4,184 | (1) | 4,183 | 475 | (4) | 471 | 257 | (157) | 100 | 4,916 | (162) | 4,754 |
Construction | 2,424 | (2) | 2,422 | 407 | (5) | 402 | 497 | (412) | 85 | 3,328 | (419) | 2,909 |
Commercial Real Estate | 12,393 | (43) | 12,350 | 3,217 | (195) | 3,022 | 1,305 | (761) | 544 | 16,915 | (999) | 15,916 |
Hotels & Tourism | 1,448 | (2) | 1,446 | 108 | (1) | 107 | 206 | (18) | 188 | 1,762 | (21) | 1,741 |
Oil & Gas | 5,468 | (4) | 5,464 | 708 | (6) | 702 | 919 | (442) | 477 | 7,095 | (452) | 6,643 |
Total | 35,481 | (59) | 35,422 | 5,626 | (213) | 5,413 | 4,028 | (2,257) | 1,771 | 45,135 | (2,529) | 42,606 |
Total Corporate, Commercial & Institutional Banking | 126,261 | (143) | 126,118 | 11,355 | (323) | 11,032 | 6,143 | (3,662) | 2,481 | 143,759 | (4,128) | 139,631 |
Total Group | 334,368 | (568) | 333,800 | 13,380 | (447) | 12,933 | 7,904 | (4,471) | 3,433 | 355,652 | (5,486) | 350,166 |
1 In addition to the aviation sector loan exposures, the Group owns $3.2 billion of aircraft under operating leases
Loans and advances by region (net of credit impairment)
30.06.231 | 31.12.22 | |||||||
Asia$million | Africa & Middle East$million | Europe & Americas$million | Total$million | Asia$million | Africa & Middle East$million | Europe & Americas$million | Total$million | |
Industry: | ||||||||
Aviation1 | 2,094 | 34 | 811 | 2,939 | 1,105 | 1,259 | 708 | 3,072 |
Commodity Traders | 4,116 | 648 | 2,937 | 7,701 | 3,497 | 978 | 3,096 | 7,571 |
Metals & Mining | 1,577 | 1,642 | 433 | 3,652 | 2,966 | 347 | 1,441 | 4,754 |
Construction | 1,984 | 484 | 471 | 2,939 | 1,776 | 624 | 509 | 2,909 |
Commercial Real Estate | 12,128 | 836 | 2,235 | 15,199 | 13,180 | 598 | 2,138 | 15,916 |
Hotel & Tourism | 993 | 199 | 547 | 1,739 | 880 | 465 | 396 | 1,741 |
Oil & Gas | 3,483 | 1,706 | 1,642 | 6,831 | 3,574 | 1,445 | 1,624 | 6,643 |
Total | 26,375 | 5,549 | 9,076 | 41,000 | 26,978 | 5,716 | 9,912 | 42,606 |
1 In addition, the Group has classified as HFS $3.3 billion of aircraft under operating leases and $0.9 billion of Aviation loans
Credit quality - loans and advances
Amortised Cost Credit Grade | 30.06.23 | |||||||
Aviation1 Gross$million | Commodity TradersGross$million | ConstructionGross$million | Metals & MiningGross$million | Commercial Real EstateGross$million | Hotel & TourismGross$million | Oil & GasGross$million | TotalGross$million | |
Strong | 2,440 | 4,837 | 1,162 | 2,525 | 7,816 | 1,336 | 4,193 | 24,309 |
Satisfactory | 451 | 2,705 | 1,668 | 962 | 6,796 | 301 | 2,149 | 15,032 |
Higher risk | - | 8 | 41 | 12 | 96 | 1 | 79 | 237 |
Credit impaired (stage 3) | 61 | 581 | 413 | 284 | 1,600 | 130 | 824 | 3,893 |
Total Gross Balance | 2,952 | 8,131 | 3,284 | 3,783 | 16,308 | 1,768 | 7,245 | 43,471 |
Strong | - | (1) | - | - | (21) | (2) | (1) | (25) |
Satisfactory | (2) | (3) | (4) | (2) | (137) | (1) | (11) | (160) |
Higher risk | - | (1) | (4) | (2) | (6) | - | (8) | (21) |
Credit impaired (stage 3) | (11) | (425) | (337) | (127) | (945) | (26) | (394) | (2,265) |
Total Credit Impairment | (13) | (430) | (345) | (131) | (1,109) | (29) | (414) | (2,471) |
Strong | 0.0% | 0.0% | 0.0% | 0.0% | 0.3% | 0.1% | 0.0% | 0.1% |
Satisfactory | 0.4% | 0.1% | 0.2% | 0.2% | 2.0% | 0.3% | 0.5% | 1.1% |
Higher risk | 0.0% | 12.5% | 9.8% | 16.7% | 6.3% | 0.0% | 10.1% | 8.9% |
Credit impaired (stage 3) | 18.0% | 73.1% | 81.6% | 44.7% | 59.1% | 20.0% | 47.8% | 58.2% |
Cover Ratio | 0.4% | 5.3% | 10.5% | 3.5% | 6.8% | 1.6% | 5.7% | 5.7% |
1 In addition, the Group has classified as HFS $3.3 billion of aircraft under operating leases and $0.9 billion of Aviation loans
Page 34
Credit Grade | 31.12.22 | |||||||
Aviation1 Gross$million | Commodity TradersGross$million | ConstructionGross$million | Metals & MiningGross$million | Commercial Real EstateGross$million | Hotel & TourismGross$million | Oil & GasGross$million | TotalGross$million | |
Strong | 1,437 | 4,419 | 1,164 | 3,425 | 8,000 | 1,047 | 3,923 | 23,415 |
Satisfactory | 1,413 | 2,894 | 1,634 | 1,208 | 7,334 | 494 | 2,215 | 17,192 |
Higher risk | 100 | 12 | 33 | 26 | 276 | 15 | 38 | 500 |
Credit impaired (stage 3) | 155 | 689 | 497 | 257 | 1,305 | 206 | 919 | 4,028 |
Total Gross Balance | 3,105 | 8,014 | 3,328 | 4,916 | 16,915 | 1,762 | 7,095 | 45,135 |
Strong | - | (3) | - | - | (25) | (1) | (1) | (30) |
Satisfactory | (1) | (4) | (3) | (5) | (129) | (1) | (7) | (150) |
Higher risk | - | (1) | (4) | - | (84) | (1) | (2) | (92) |
Credit impaired (stage 3) | (32) | (435) | (412) | (157) | (761) | (18) | (442) | (2,257) |
Total Credit Impairment | (33) | (443) | (419) | (162) | (999) | (21) | (452) | (2,529) |
Strong | 0.0% | 0.1% | 0.0% | 0.0% | 0.3% | 0.1% | 0.0% | 0.1% |
Satisfactory | 0.1% | 0.1% | 0.2% | 0.4% | 1.8% | 0.2% | 0.3% | 0.9% |
Higher risk | 0.0% | 8.3% | 12.1% | 0.0% | 30.4% | 6.7% | 5.3% | 18.4% |
Credit impaired (stage 3) | 20.6% | 63.1% | 82.9% | 61.1% | 58.3% | 8.7% | 48.1% | 56.0% |
Cover Ratio | 1.1% | 5.5% | 12.6% | 3.3% | 5.9% | 1.2% | 6.4% | 5.6% |
1 In addition to the aviation sector loan exposures, the Group owns$3.2 billion of aircraft under operating leases.
China commercial real estate
Within CCIB, the Group's gross loans and advances to customers that are exposed to China commercial real estate are $2.8 billion (31 December 2022: $3.2 billion).
The proportion of credit impaired exposures increased to 46 per cent (31 December 2022: 33 per cent) as market conditions continued to deteriorate during the period, and provision coverage increased to 60 per cent (31 December 2022: 56 per cent) reflecting increased provision charges during the period. The proportion of the loan book rated as Higher Risk also decreased by 6 per cent to 2 per cent (31 December 2022: 8 per cent) primarily due to downgrades in the period.
The Group continues to hold a judgemental management overlay, which decreased by $37 million to $136 million compared to 2022, reflecting utilisation from downgrades and repayments. $2 million (31 December 2022: $5 million) of this overlay is held against off-balance sheet exposures. Total provision coverage for the non-credit impaired portfolio is 9 per cent.
The Group is further indirectly exposed to China commercial real estate through its associate investment in China Bohai Bank.
30.06.2023 | ||||
China$million | Hong Kong$million | Rest of Group$million | Total$million | |
Loans to customers | 761 | 1,997 | 59 | 2,817 |
Off balance sheet | 108 | 207 | - | 315 |
Total as at 30 June 2023 | 869 | 2,204 | 59 | 3,132 |
Loans to customers - By Credit quality | ||||
Gross | ||||
Strong | 316 | 93 | - | 409 |
Satisfactory | 230 | 748 | 59 | 1,037 |
Higher risk | 8 | 54 | - | 62 |
Credit impaired (stage 3) | 207 | 1,102 | - | 1,309 |
Total as at 30 June 2023 | 761 | 1,997 | 59 | 2,817 |
Loans to customers - ECL | ||||
Strong | - | (21) | - | (21) |
Satisfactory | - | (114) | (6) | (120) |
Higher risk | - | (2) | - | (2) |
Credit impaired (stage 3) | (47) | (733) | - | (780) |
Total as at 30 June 2023 | (47) | (870) | (6) | (923) |
Page 35
31.12.2022 | ||||
China$million | Hong Kong$million | Rest of Group$million | Total$million | |
Loans to customers | 953 | 2,248 | 39 | 3,240 |
Off balance sheet | 74 | 85 | 8 | 167 |
Total as at 31 December 2022 | 1,027 | 2,333 | 47 | 3,407 |
Loans to customers - By Credit quality | ||||
Gross | ||||
Strong | 256 | 221 | - | 477 |
Satisfactory | 459 | 921 | 39 | 1,419 |
Higher risk | - | 271 | - | 271 |
Credit impaired (stage 3) | 238 | 835 | - | 1,073 |
Total as at 31 December 2022 | 953 | 2,248 | 39 | 3,240 |
Loans to customers - ECL | ||||
Strong | - | (19) | - | (19) |
Satisfactory | (9) | (110) | - | (119) |
Higher risk | - | (83) | - | (83) |
Credit impaired (stage 3) | (37) | (559) | - | (596) |
Total as at 31 December 2022 | (46) | (771) | - | (817) |
Debt securities and other eligible bills (reviewed)
This section provides further detail on gross debt securities and treasury bills.
The standard credit ratings used by the Group are those used by Standard & Poor's or its equivalent. Debt securities held that have a short-term rating are reported against the long-term rating of the issuer. For securities that are unrated, the Group applies an internal credit rating, as described under the credit rating and measurement section.
Total gross debt securities and other eligible bills decreased by $10.4 billion to $161.3 billion (31 December 2022: $171.7 billion) due to action taken to manage liquidity.
Stage 1 gross balance decreased by $9.3 billion to $156.8 billion (31 December 2022: $166.1 billion) of which $5.5 billion of the decrease was from unrated.
Stage 2 gross balance decreased by $1 billion to $4.4 billion (31 December 2022: $5.5 billion).
Stage 3 gross balance was broadly stable at $0.2 billion (31 December 2022: $0.1 billion).
Amortised cost and FVOCI | 30.06.23 | 31.12.22 | ||||
Gross$million | ECL$million | Net2 $million | Gross$million | ECL$million | Net2 $million | |
Stage 1 | 156,760 | (35) | 156,725 | 166,103 | (25) | 166,078 |
AAA | 66,969 | (9) | 66,960 | 73,933 | (10) | 73,923 |
AA- to AA+ | 39,475 | (2) | 39,473 | 42,327 | (4) | 42,323 |
A- to A+ | 31,951 | (2) | 31,949 | 29,488 | (2) | 29,486 |
BBB- to BBB+ | 10,604 | (10) | 10,594 | 7,387 | (1) | 7,386 |
Lower than BBB- | 1,315 | (2) | 1,313 | 1,047 | (2) | 1,045 |
Unrated | 6,446 | (10) | 6,436 | 11,921 | (6) | 11,915 |
Stage 2 | 4,400 | (39) | 4,361 | 5,455 | (90) | 5,365 |
AAA | 21 | - | 21 | 21 | - | 21 |
AA- to AA+ | 88 | - | 88 | 40 | - | 40 |
A- to A+ | 148 | (2) | 146 | 17 | (1) | 16 |
BBB- to BBB+ | 2,219 | (15) | 2,204 | 2,605 | (16) | 2,589 |
Lower than BBB- | 1,755 | (20) | 1,735 | 2,485 | (71) | 2,414 |
Unrated | 169 | (2) | 167 | 287 | (2) | 285 |
Stage 3 | 168 | (53) | 115 | 144 | (106) | 38 |
Lower than BBB- | 74 | - | 74 | 67 | (55) | 12 |
Unrated | 94 | (53) | 41 | 77 | (51) | 26 |
Gross balance¹ | 161,328 | (127) | 161,201 | 171,702 | (221) | 171,481 |
1 Stage 3 gross includes $100 million (2022: $28 million) originated credit-impaired debt securities with impairment of $14 million (2022: $13 million)
2 FVOCI instrument are not presented net of ECL. While the presentation is on a net basis for the table, the total net on-balance sheet amount is $161,254 million (31 December 2022: $171,640 million). Refer to the Analysis of financial instrument by stage table
Page 36
IFRS 9 expected credit loss methodology (reviewed)
Refer to pages 269 to 270 in the 2022 Annual Report for the 'Approach for determining expected credit losses', 'Application of lifetime' and pages 278 to 281 for 'Significant increase in credit risk (SICR)', 'Assessment of credit-impaired financial assets' and 'Governance and application of expert credit judgement in respect of expected credit losses'. There have been no changes to the Group's approach in determining SICR compared to 31 December 2022.
Composition of credit impairment provisions (reviewed)
The table below summarises the key components of the Group's credit impairment provision balances at 30 June 2023 and 31 December 2022.
30 June 2023 | Corporate, Commercial & Institutional Banking$ million | Consumer, Private & Business Banking$ million | Ventures$ million | Central &other items$ million | Total$ million |
Modelled ECL provisions (base forecast) | 421 | 554 | 23 | 91 | 1,089 |
Modelled Impact of multiple economic scenarios | 37 | 15 | - | 3 | 55 |
Total ECL provisions before management judgements | 458 | 569 | 23 | 94 | 1,144 |
Judgemental post model adjustments | |||||
- Model Calibration | - | (17) | - | - | (17) |
Management overlays1 | |||||
- China commercial real estate | 136 | - | - | - | 136 |
- Other | 13 | 9 | - | - | 22 |
Total modelled provisions | 607 | 561 | 23 | 94 | 1,285 |
Of which: Stage 1 | 160 | 341 | 14 | 38 | 553 |
Stage 2 | 356 | 115 | 4 | 49 | 524 |
Stage 3 | 91 | 105 | 5 | 7 | 208 |
Stage 3 non-modelled provisions | 3,756 | 676 | - | 137 | 4,569 |
Total credit impairment provisions | 4,363 | 1,237 | 23 | 231 | 5,854 |
31 December 2022 | Corporate, Commercial & Institutional Banking$ million | Consumer, Private & Business Banking$ million | Ventures$ million | Central &other items2$ million | Total$ million |
Modelled ECL provisions (base forecast) | 505 | 556 | 12 | 194 | 1,267 |
Modelled Impact of multiple economic scenarios3 | 38 | 6 | - | 6 | 50 |
Total ECL provisions before management judgements | 543 | 562 | 12 | 200 | 1,317 |
Judgemental post model adjustments | |||||
- Model Calibration | - | 10 | - | - | 10 |
- Multiple Economic Scenarios | - | 34 | - | - | 34 |
Management overlays1 | |||||
- China commercial real estate | 173 | - | - | - | 173 |
- Other | 9 | 37 | - | - | 46 |
Total modelled provisions | 725 | 643 | 12 | 200 | 1,580 |
Of which: Stage 1 | 194 | 413 | 10 | 34 | 651 |
Stage 2 | 411 | 118 | 1 | 100 | 630 |
Stage 3 | 120 | 112 | 1 | 66 | 299 |
Stage 3 non-modelled provisions | 3,702 | 664 | - | 129 | 4,495 |
Total credit impairment provisions | 4,427 | 1,307 | 12 | 329 | 6,075 |
1 $46 million (31 December 2022: $55 million) is in stage 1, $99 million (31 December 2022: $148 million) in stage 2 and $13 million (31 December 2022: $16 million) in stage 3
2 Includes ECL on cash and balances at central banks, accrued income, assets held for sale and other assets
3 Includes a post model adjustment of $(17) million in CCIB
Page 37
Model performance post model adjustments
As part of normal model monitoring and validation operational processes, where a model's performance breaches the monitoring thresholds or validation standards, an assessment is completed to determine whether a model performance post model adjustment is required to correct for the identified model issue. Model performance post model adjustments are approved by the Group Credit Model Assessment Committee and will be removed when the models are updated to correct for the identified model issue or the estimates return to being within the monitoring thresholds.
As at 30 June 2023, model performance post model adjustments have been applied for 9 models out of the total of 172 models. In aggregate, these post model adjustments reduce the Group's impairment provisions by $8 million (0.1 per cent of modelled provisions) compared with a $60 million decrease at 31 December 2022. The most significant of these relates to adjustments to increase ECL by $33 million to account for short-term client exits in CCIB and a $22 million decrease in ECL for Malaysian CPBB Business Clients.
In addition to these model performance post model adjustments, separate judgemental post model and management adjustments have also been applied. These adjustments are summarised below.
30.06.23$ million | 31.12.22$ million | |
Model performance post model adjustments | ||
Corporate, Commercial & Institutional Banking | 26 | (22) |
Consumer, Private & Business Banking | (37) | (38) |
Central & other items | 3 | - |
Total model performance post model adjustments | (8) | (60) |
Key assumptions and judgements in determining expected credit loss
Incorporation of forward-looking information
The evolving economic environment is a key determinant of the ability of a bank's clients to meet their obligations as they fall due. It is a fundamental principle of IFRS 9 that the provisions banks hold against potential future Credit Risk losses should depend, not just on the health of the economy today, but should also take into account potential changes to the economic environment. For example, if a bank were to anticipate a sharp slowdown in the world economy over the coming year, it should hold more provisions today to absorb the credit losses likely to occur in the near future.
To capture the effect of changes to the economic environment, the PDs and LGDs used to calculate ECL incorporate forward-looking information in the form of forecasts of the values of economic variables and asset prices that are likely to have an effect on the repayment ability of the Group's clients.
The 'base forecast' of the economic variables and asset prices is based on management's view of the five-year outlook, supported by projections from the Group's in-house research team and outputs from a third-party model that project specific economic variables and asset prices. The research team takes consensus views into consideration, and senior management review projections for some core country variables against consensus when forming their view of the outlook. For the period beyond five years, management utilises the in-house research view and third-party model outputs, which allow for a reversion to long-term growth rates or norms. All projections are updated on a quarterly basis.
Forecast of key macroeconomic variables underlying the expected credit loss calculation and the impact on non-linearity
In the Base Forecast - management's view of the most likely outcome -the pace of growth of the world economy is expected to slow in the near term led by Europe and Americas. Global GDP is forecast to grow by less than 3 per cent in 2023. World GDP growth averaged 3.7 per cent for the 10 years prior to COVID-19 (between 2010 and 2019).
The COVID pandemic has faded from the headlines, and the Russia-Ukraine war may become a frozen conflict (albeit still with heightened geopolitical risks). However, the economic repercussions of both shocks continue to be felt. Central banks have tightened policy - aggressively in North America, Latin America and Europe - to contain inflation pressures, exposing vulnerabilities in some US and European banks and broader financial-market fragility earlier in the year.
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While the quarterly Base Forecasts inform the Group's strategic plan, one key requirement of IFRS 9 is that the assessment of provisions should consider multiple future economic environments. For example, the global economy may grow more quickly or more slowly than the Base Forecast, and these variations would have different implications for the provisions that the Group should hold today. As the negative impact of an economic downturn on credit losses tends to be greater than the positive impact of an economic upturn, if the Group sets provisions only on the ECL under the Base Forecast it might maintain a level of provisions that does not appropriately capture the range of potential outcomes. To address this property of skewness (or non-linearity), IFRS 9 requires reported ECL to be a probability-weighted ECL, calculated over a range of possible outcomes.
To assess the range of possible outcomes the Group simulates a set of 50 scenarios around the Base Forecast, calculates the ECL under each of them and assigns an equal weight of 2 per cent to each scenario outcome. These scenarios are generated by a Monte Carlo simulation, which addresses the challenges of crafting many realistic alternative scenarios in the many countries in which the Group operates by means of a model, which produces these alternative scenarios while considering the degree of historical uncertainty (or volatility) observed from Q1 1990 to Q3 2022 around economic outcomes and how these outcomes have tended to move in relation to one another (or correlation). This naturally means that each of the 50 scenarios do not have a specific narrative, although collectively they explore a range of hypothetical alternative outcomes for the global economy, including scenarios that turn out better than expected and scenarios that amplify anticipated stresses.
The GDP graphs below illustrate the shape of the Base Forecast for key footprint markets in relation to prior periods' actuals. The long-term growth rates are based on the pace of economic expansion expected for 2030. The tables below provide a summary of the Group's Base Forecast for these markets. The peak/trough amounts show the highest and lowest points within the Base Forecast.
China's growth is expected to accelerate to almost 6 per cent in 2023 from around 3 per cent in 2022. Favourable base effects and China's economic reopening have provided support to the economy. Similarly the reopening of Hong Kong's economy in late 2022 and the improvement in China's economic condition have lifted business confidence their. Hong Kong GDP growth is expected to improve to over 3 per cent following a contraction by a similar margin in 2022. In contrast Singapore GDP growth is expected to decelerate to just over 1 per cent from over 3 per cent in 2022. Softer external demand and the peaking of the electronics cycle are expected to continue to weigh on economic activity and in particular trade-related sectors. US and European economic growth are expected to slow sharply this year on high inflation, monetary policy tightening and increased financial stability risk. Korea's economic growth is also expected to ease just below 1.5 per cent in 2023 from over 2 per cent on the weaker external environment and also weak domestic consumption on declining real incomes amid elevated inflation and high interest rates. Growth in India is expected to slow to 5.5 per cent from over 7 per cent in 2022 as the impact from the post-COVID pent up demand fades.
The slowdown in world GDP growth in the near term will translate to a softening in the growth of demand for commodities in 2023. Brent Crude oil prices are expected to average around $89 in 2023 compared to around $100 in 2022.
30.06.23 | ||||||||
China | Hong Kong | |||||||
GDP growth (YoY%) | Unemployment% | 3-month interest rates % | House prices (YoY %) | GDP growth (YoY %) | Unemployment% | 3-month interest rates % | House prices (YoY %) | |
Base forecast1 | ||||||||
2023 | 5.8 | 4.2 | 2.2 | (1.7) | 3.6 | 3.3 | 3.8 | (6.8) |
2024 | 5.4 | 4.1 | 2.3 | 5.2 | 3.6 | 3.3 | 3.0 | 3.9 |
2025 | 5.3 | 4.0 | 2.5 | 5.6 | 2.5 | 3.3 | 2.5 | 3.7 |
2026 | 5.1 | 4.0 | 2.7 | 4.5 | 2.4 | 3.3 | 2.5 | 2.8 |
2027 | 4.7 | 3.9 | 3.0 | 4.4 | 2.4 | 3.3 | 2.5 | 2.7 |
5-year average2 | 5.1 | 4.0 | 2.6 | 4.3 | 3.0 | 3.3 | 2.7 | 2.6 |
Peak | 5.8 | 4.2 | 3.0 | 7.2 | 6.7 | 3.4 | 3.9 | 4.9 |
Trough | 4.5 | 3.9 | 2.2 | (2.0) | 2.2 | 3.3 | 2.5 | (5.8) |
Monte Carlo | ||||||||
Low3 | 1.4 | 3.5 | 1.0 | (3.2) | (3.5) | 1.7 | 0.4 | (20.2) |
High4 | 9.4 | 4.5 | 4.5 | 12.1 | 8.7 | 5.3 | 5.3 | 27.7 |
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30.06.23 | ||||||||
Singapore | Korea | |||||||
GDP growth (YoY%) | Unemployment% | 3-month interest rates % | House prices (YoY%) | GDP growth (YoY%) | Unemployment% | 3-month interest rates % | House prices (YoY %) | |
Base forecast1 | ||||||||
2023 | 1.3 | 2.8 | 4.4 | 6.1 | 1.3 | 3.3 | 3.6 | (4.1) |
2024 | 2.8 | 2.8 | 3.6 | (0.4) | 2.3 | 3.4 | 3.0 | 3.8 |
2025 | 2.5 | 2.7 | 2.8 | 0.8 | 2.5 | 3.3 | 2.3 | 3.5 |
2026 | 2.2 | 2.7 | 2.6 | 3.1 | 2.4 | 3.2 | 2.2 | 2.7 |
2027 | 2.7 | 2.7 | 2.6 | 3.9 | 2.3 | 3.1 | 2.2 | 2.4 |
5-year average2 | 2.4 | 2.7 | 3.0 | 2.2 | 2.3 | 3.3 | 2.5 | 2.4 |
Peak | 3.8 | 2.9 | 4.5 | 3.9 | 2.5 | 3.6 | 3.7 | 4.3 |
Trough | 1.1 | 2.7 | 2.6 | (0.7) | 1.0 | 3.1 | 2.2 | (4.6) |
Monte Carlo | ||||||||
Low3 | (3.1) | 1.9 | 0.7 | (16.3) | (2.2) | 1.4 | 0.7 | (6.0) |
High4 | 8.5 | 3.8 | 5.4 | 22.6 | 7.5 | 5.5 | 6.1 | 11.4 |
30.06.23 | |||||
India | Brent Crude$ pb | ||||
GDP growth(YoY%) | Unemployment% | 3monthinterest rates% | House prices(YoY%) | ||
Base forecast1 | |||||
2023 | 5.5 | NA | 6.2 | 2.9 | 88.8 |
2024 | 6.0 | NA | 6.1 | 5.6 | 97.5 |
2025 | 6.0 | NA | 6.4 | 7.0 | 109.3 |
2026 | 6.1 | NA | 6.4 | 7.1 | 127.8 |
2027 | 6.4 | NA | 5.9 | 7.0 | 124.9 |
5-year average2 | 6.1 | NA | 6.2 | 6.1 | 113.5 |
Peak | 6.5 | NA | 6.5 | 7.2 | 132.0 |
Trough | 4.8 | NA | 5.9 | 2.2 | 88.0 |
Monte Carlo | |||||
Low3 | 2.1 | NA | 2.0 | 0.1 | 53.1 |
High4 | 10.6 | NA | 11.3 | 11.6 | 221.6 |
31.12.22 | ||||||||
China | Hong Kong | |||||||
GDP growth(YoY%) | Unemployment% | 3-month interest rates% | House prices(YoY%) | GDP growth(YoY%) | Unemployment% | 3-month interest rates% | House prices(YoY%) | |
5-year average2 | 5.1 | 3.9 | 2.3 | 3.6 | 2.3 | 3.0 | 2.8 | 1.7 |
Peak | 7.9 | 4.1 | 3.0 | 5.0 | 4.3 | 3.1 | 3.6 | 4.9 |
Trough | 4.5 | 3.8 | 1.4 | 0.0 | 0.5 | 2.9 | 2.4 | (8.4) |
Monte Carlo | ||||||||
Low3 | 1.1 | 3.4 | 0.6 | (3.4) | (3.8) | 1.7 | 0.5 | (22.0) |
High4 | 9.6 | 4.3 | 4.4 | 10.0 | 8.0 | 4.2 | 6.1 | 26.8 |
31.12.22 | ||||||||
Singapore | Korea | |||||||
GDP growth(YoY%) | Unemployment% | 3-month interest rates% | House prices(YoY%) | GDP growth(YoY%) | Unemployment% | 3-month interest rates% | House prices(YoY%) | |
5-year average2 | 3.7 | 3.2 | 4.7 | 4.7 | 2.5 | 3.3 | 3.9 | 2.8 |
Peak | 1.7 | 3.0 | 2.4 | (2.4) | 1.8 | 3.0 | 2.7 | (0.4) |
Trough | 2.8 | 3.2 | 4.5 | 1.0 | 2.1 | 3.2 | 3.9 | 0.0 |
Monte Carlo | ||||||||
Low3 | (3.4) | 2.1 | 0.8 | (15.9) | (2.8) | 1.1 | 1.1 | (5.4) |
High4 | 8.6 | 4.5 | 5.6 | 20.4 | 7.0 | 4.9 | 5.9 | 10.0 |
Page 40
31.12.22 | |||||
India | Brent crude$ pb | ||||
GDP growth(YoY%) | Unemployment% | 3-monthinterest rates% | House prices(YoY%) | ||
5-year average2 | 6.4 | NA | 5.6 | 5.7 | 106.6 |
Peak | 7.7 | NA | 6.3 | 7.2 | 118.8 |
Trough | 3.2 | NA | 5.3 | 1.6 | 88.0 |
Monte Carlo | |||||
Low3 | 1.5 | NA | 1.9 | (1.1) | 42.4 |
High4 | 12.1 | NA | 9.5 | 13.0 | 204.2 |
1 Annual numbers are for each year covering from Q1 to Q4. For example: 2023 is from Q1 2023 to Q4 2023
2 5 year averages reported for 30.06.23 cover Q3 2023 to Q2 2028. % year averages reported for 31.12.22 cover Q1 2023 to Q4 2027
3 Represents the 10th percentile in the range of economic scenarios used to determine non-linearity
4 Represents the 90th percentile in the range of economic scenarios used to determine non-linearity
Impact of multiple economic scenarios
The final probability-weighted ECL reported by the Group is a simple average of the ECL for each of the 50 scenarios simulated using a Monte Carlo model. The Monte Carlo approach has the advantage that it generates many plausible alternative scenarios that cover our global footprint. The Monte Carlo model was redeveloped over 2022 to increase the range of scenarios that the model forecasts.
The total amount of non-linearity, calculated as the difference between the probability-weighted ECL calculated by the Monte Carlo model and the unweighted base forecast ECL, is $55 million (31 December 2022: $50 million). The CCIB and Central and other items portfolios accounted for $40 million (31 December 2022: $44 million) of the calculated non-linearity with the remaining $15 million (31 December 2022: $6 million) attributable to CPBB portfolios. As the non-linearity calculated for the CPBB portfolios at 31 December 2022 was relatively low a judgemental post model adjustment of $34 million was applied. Subsequent analysis completed during the first half of 2023 supported that the calculated non-linearity for CPBB portfolios was appropriate and the judgemental post model adjustment was released.
The impact of multiple economic scenarios on stage 1, stage 2 and stage 3 modelled ECL is set out in the table below together with the management overlay and other judgemental adjustments.
Base forecast$million | Multiple economic scenarios1$million | Management overlaysand other judgemental adjustments$million | TotalmodelledECL2$million | |
Total expected credit loss at 30 June 20233 | 1,089 | 55 | 141 | 1,285 |
Total expected credit loss at 31 December 2022 | 1,267 | 84 | 229 | 1,580 |
1 Includes judgemental post model adjustment of $nil million (31 December 2022: $34 million) relating to Consumer, Private and Business Banking
2 Total modelled ECL comprises stage 1 and stage 2 balances of $1,077 million (31 December 2022: $1,281 million) and $208 million (31 December 2022: $299 million) of modelled ECL on stage 3 loans
3 Includes ECL on Assets held for sale
The average expected credit loss under multiple scenarios is 5 per cent higher than the expected credit loss calculated using only the most likely scenario (the Base Forecast). Portfolios that are more sensitive to non-linearity include those with greater leverage and/or a longer tenor, such as Project and Shipping Finance portfolios. Other portfolios display minimal non-linearity owing to limited responsiveness to macroeconomic impacts for structural reasons such as significant collateralisation as with the CPBB mortgage portfolios.
Judgemental adjustments
As at 30 June 2023, the Group held judgemental adjustments for ECL as set out in the table below. All of the judgemental adjustments have been determined after taking account of the model performance post model adjustments reported and they are reassessed quarterly. They are reviewed and approved by the IFRS 9 Impairment Committee and will be released when no longer relevant.
Page 41
30 June 2023 | Corporate, Commercial & Institutional Banking$ million | Consumer, Private & Business Banking | Total$ million | |||
Mortgages$ million | Credit Cards$ million | Other$ million | Total$ million | |||
Judgemental post model adjustments | - | - | 2 | (19) | (17) | (17) |
Judgemental management overlays: | ||||||
- China CRE | 136 | - | - | - | - | 136 |
- Others | 13 | 1 | 4 | 4 | 9 | 22 |
Total judgemental adjustments | 149 | 1 | 6 | (15) | (8) | 141 |
Judgemental adjustments by stage: | ||||||
- Stage 1 | 37 | 1 | 6 | (3) | 4 | 41 |
- Stage 2 | 99 | - | - | (12) | (12) | 87 |
- Stage 3 | 13 | - | - | - | - | 13 |
31 December 2022 | Corporate, Commercial & Institutional Banking$ million | Consumer, Private & Business Banking | Total$ million | |||
Mortgages$ million | Cards$ million | Other$ million | Total$million | |||
Judgemental post model adjustments | - | 3 | 11 | 30 | 44 | 44 |
Judgemental management overlays: | ||||||
- China CRE | 173 | - | - | - | - | 173 |
- Other | 9 | 2 | 5 | 30 | 37 | 46 |
Total judgemental adjustments | 182 | 5 | 16 | 60 | 81 | 263 |
Judgemental adjustments by stage: | ||||||
- Stage 1 | 37 | 1 | 5 | 39 | 45 | 82 |
- Stage 2 | 138 | 3 | 9 | 17 | 29 | 165 |
- Stage 3 | 9 | 1 | 2 | 4 | 7 | 16 |
Judgemental post model adjustments
As at 30 June 2023, judgemental post model adjustments to reduce ECL by $17 million (31 December 2022: $44 million increase) have been applied to certain CPBB models, primarily to adjust for temporary factors impacting modelled outputs. These will be released when these factors normalise. At 31 December 2022, $34 million of the increase in ECL related to multiple economic scenarios, which was fully released in the first half of 2023 (see 'Impact of multiple economic scenarios').
Judgemental management overlays
China commercial real estate
Chinese property developers continue to experience liquidity issues, triggered by government policy changes aimed at deleveraging the property sector and ensuring property developers have the financial ability to complete residential properties under construction. The government's 'three red lines' matrix was introduced in August 2020 to tighten the funding conditions for property developers by limiting the growth rate in external debt. With additional controls on sales of properties to end buyers (e.g. mortgage lending control, pricing control, eligibility control) and on restricting developers' ability to access cash from 'escrow accounts' with cash paid by retail residential buyers, the cashflow of developers has been significantly squeezed. Also, with capital markets reacting negatively to the tightening policies, we have seen greater volatility in bond pricing and reduced access to capital markets liquidity for developers. As such, some developers have faced/are facing difficulties in servicing and repaying financing obligations.
The Group's loans and advances to China commercial real estate clients was $2.8 billion at 30 June 2023 (31 December 2022: $3.2 billion). Client level analysis continues to be done, with the high-risk clients being placed on purely precautionary or non-purely precautionary early alert. Given the evolving nature of the risks in the China commercial real estate sector, a management overlay of $136 million (31 December 2022: $173 million) has been taken by estimating the impact of further deterioration to exposures in this sector. This decrease was primarily driven by repayments and utilisation.
Other
The remaining COVID-19 overlay held in CPBB of $21 million held at 31 December 2022 has been fully released in the first half of 2023 and no COVID-19 overlay is held at 30 June 2023.
Overlays of $9 million (31 December 2022: $16 million) have also been applied in CPBB to capture operating and macroeconomic environment challenges, in part caused by rising interest rates in certain markets, and the impact of sovereign defaults in the last quarter of 2022, both of which are not fully captured in the modelled outcomes.
Page 42
Due to the ongoing economic uncertainty following the Sri Lanka Sovereign default in the first half of 2022, a judgemental overlay of $13 million (31 December 2022: $9 million) is held in CCIB against modelled stage 3 exposures in Sri Lanka that have not been individually assessed for impairment.
Stage 3 assets
Credit-impaired assets managed by Stressed Asset Risk incorporate forward-looking economic assumptions in respect of the recovery outcomes identified, and are assigned individual probability weightings. These assumptions are not based on a Monte Carlo simulation but are informed by the Base Forecast.
Sensitivity of expected credit loss calculation to macroeconomic variables
The ECL calculation relies on multiple variables and is inherently non-linear and portfolio-dependent, which implies that no single analysis can fully demonstrate the sensitivity of the ECL to changes in the macroeconomic variables. The Group has conducted a series of analyses with the aim of identifying the macroeconomic variables which might have the greatest impact on the overall ECL. These encompassed single variable and multi-variable exercises, using simple up/ down variation and extracts from actual calculation data, as well as bespoke scenario design assessments.
The primary conclusion of these exercises is that no individual macroeconomic variable is materially influential. The Group believes this is plausible as the number of variables used in the ECL calculation is large. This does not mean that macroeconomic variables are uninfluential; rather, that the Group believes that consideration of macroeconomics should involve whole scenarios, as this aligns with the multi-variable nature of the calculation.
The Group faces downside risks in the operating environment related to the uncertainties surrounding the macroeconomic outlook. To explore this, a sensitivity analysis of ECL was undertaken to explore the effect of slower economic recoveries across the Group's footprint markets. Two downside scenarios were considered. The first explores the impact of increased geopolitical tensions between China and the West, in particular, the US. Given the recent instability in the US and European banking sector the second more modest downside scenario replicates the Global Financial Crisis of 2008-09 but assumes the shock is halved.
Baseline | Geopolitical Risk Intensification | GFC (50% shock) | ||||
Five year average | Peak/Trough | Five year average | Peak/Trough | Five year average | Peak/Trough | |
China GDP | 5.1 | 5.8/4.5 | 3.5 | 6.8/(6.4) | 4.8 | 5.3/3.9 |
China unemployment | 4.0 | 4.2/3.9 | 5.7 | 6.5/4.7 | 4.1 | 4.3/3.9 |
China property prices | 4.3 | 7.2/(2.0) | 3.5 | 5.7/(3.1) | 2.2 | 5.9/(7.5) |
Hong Kong GDP | 3.0 | 6.7/2.2 | 1.9 | 3.4/(4.1) | 2.7 | 5.3/(1.9) |
Hong Kong unemployment | 3.3 | 3.4/3.3 | 4.3 | 5.4/3.6 | 3.6 | 4.3/3.3 |
Hong Kong property prices | 2.6 | 4.9/(5.8) | 1.2 | 11.3/(13.5) | 1.6 | 4.4/(6.9) |
US GDP | 1.6 | 2.4/0.0 | 0.4 | 3.2/(9.0) | 1.1 | 2.1/(1.2) |
Singapore GDP | 2.4 | 3.8/1.1 | 1.2 | 3.5/(6.9) | 2.2 | 6.7/(3.5) |
India GDP | 6.1 | 6.5/4.8 | 4.8 | 7.1/(2.9) | 5.8 | 6.5/4.7 |
Crude oil | 113.5 | 132.0/88.0 | 89.5 | 114.6/69.0 | 106.4 | 132.0/56.8 |
Period covered from Q3 2023 to Q2 2028
Base (GDP, YoY%) | Geopolitical Risk Intensification (GDP, YoY%) | Difference from Base | |||||||||||||
2023 | 2024 | 2025 | 2026 | 2027 | 2023 | 2024 | 2025 | 2026 | 2027 | 2023 | 2024 | 2025 | 2026 | 2027 | |
China | 5.5 | 5.4 | 5.2 | 4.9 | 4.6 | (4.0) | 3.0 | 6.6 | 6.1 | 5.4 | (9.5) | (2.4) | 1.4 | 1.2 | 0.9 |
Hong Kong | 5.1 | 2.8 | 2.4 | 2.4 | 2.4 | (1.3) | 1.3 | 3.3 | 3.2 | 2.9 | (6.4) | (1.5) | 0.9 | 0.8 | 0.6 |
US | 0.5 | 1.7 | 2.0 | 2.0 | 1.9 | (6.8) | (0.1) | 3.1 | 2.9 | 2.6 | (7.2) | (1.9) | 1.1 | 0.9 | 0.7 |
Singapore | 1.8 | 3.3 | 1.8 | 2.6 | 2.7 | (5.2) | 1.5 | 2.8 | 3.4 | 3.3 | (7.0) | (1.8) | 1.0 | 0.9 | 0.6 |
India | 5.7 | 6.0 | 6.0 | 6.2 | 6.4 | (1.2) | 4.3 | 7.0 | 7.0 | 7.0 | (6.9) | (1.7) | 1.0 | 0.8 | 0.6 |
Each year is from Q3 to Q2. For example 2023 is from Q3 2023 to Q2 2024.
Base (GDP, YoY%) | GFC (50% shock) (GDP, YoY%) | Difference from Base | |||||||||||||
2023 | 2024 | 2025 | 2026 | 2027 | 2023 | 2024 | 2025 | 2026 | 2027 | 2023 | 2024 | 2025 | 2026 | 2027 | |
China | 5.5 | 5.4 | 5.2 | 4.9 | 4.6 | 4.5 | 4.9 | 5.2 | 4.9 | 4.6 | (1.0) | (0.5) | 0.0 | 0.0 | 0.0 |
Hong Kong | 5.1 | 2.8 | 2.4 | 2.4 | 2.4 | 1.8 | 2.1 | 4.2 | 3.1 | 2.4 | (3.3) | (0.7) | 1.7 | 0.6 | 0.0 |
US | 0.5 | 1.7 | 2.0 | 2.0 | 1.9 | (0.3) | (0.2) | 1.9 | 2.0 | 1.9 | (0.8) | (1.9) | (0.1) | 0.0 | 0.0 |
Singapore | 1.8 | 3.3 | 1.8 | 2.6 | 2.7 | (1.2) | 3.8 | 3.0 | 2.8 | 2.7 | (3.0) | 0.5 | 1.2 | 0.2 | 0.0 |
India | 5.7 | 6.0 | 6.0 | 6.2 | 6.4 | 5.0 | 5.5 | 6.0 | 6.2 | 6.4 | (0.7) | (0.5) | 0.0 | 0.0 | 0.0 |
Each year is from Q3 to Q2. For example 2023 is from Q3 2023 to Q2 2024.
Page 43
The total modelled stage 1 and 2 ECL provisions (including both on and off-balance sheet instruments) would be approximately $92 million higher under the GFC (50 per cent shock) scenario, and $346 million higher under the Geopolitical risk intensification scenario than the baseline ECL provisions (which excluded the impact of multiple economic scenarios and management overlays which may already capture some of the risks in these scenarios). The proportion of stage 2 assets would increase from 3.7 per cent in the base case to 4.2 per cent and 7.4 per cent respectively under the GFC (50 per cent shock) and Geopolitical risk intensification scenarios. This includes the impact of exposures transferring to stage 2 from stage 1 but does not consider an increase in stage 3 defaults.
Under both scenarios the majority of the increase in CCIB came from the main corporate and project finance portfolios in the UAE and Hong Kong being impacted. For the CPBB portfolios most of the increases came from the unsecured retail portfolios with the Hong Kong and Singapore Credit Cards portfolios impacted.
There was no material change in modelled stage 3 provisions as these primarily relate to unsecured CPBB exposures for which the LGD is not sensitive to changes in the macroeconomic forecasts. There is also no material change for non-modelled stage 3 exposures as these are more sensitive to client specific factors than to alternative macroeconomic scenarios.
The actual outcome of any scenario may be materially different due to, among other factors, the effect of management actions to mitigate potential increases in risk and changes in the underlying portfolio.
Modelled provisions
Gross as reported1$ million | ECL asreported2$ million | ECL Base case$ million | ECL(50% shock)$ million | ECL Geopolitical risk intensification$ million | |
Stage 1 modelled | |||||
Corporate, Commercial & Institutional Banking | 326,143 | 123 | 105 | 150 | 202 |
Consumer, Private & Business Banking | 188,974 | 337 | 330 | 332 | 349 |
Ventures | 927 | 14 | 14 | 14 | 14 |
Central & Other | 197,824 | 35 | 33 | 37 | 40 |
Total excluding management judgements | 713,868 | 509 | 482 | 533 | 605 |
Stage 2 modelled | |||||
Corporate, Commercial & Institutional Banking | 15,063 | 257 | 239 | 275 | 441 |
Consumer, Private & Business Banking | 2,158 | 127 | 119 | 123 | 138 |
Ventures | 39 | 4 | 4 | 4 | 4 |
Central & Other | 4,416 | 39 | 37 | 38 | 39 |
Total excluding management judgements | 21,676 | 427 | 399 | 440 | 622 |
Total Stage 1 & 2 modelled | |||||
Corporate, Commercial & Institutional Banking | 341,206 | 380 | 344 | 425 | 643 |
Consumer, Private & Business Banking | 191,132 | 464 | 449 | 455 | 487 |
Ventures | 966 | 18 | 18 | 18 | 18 |
Central & Other | 202,240 | 74 | 70 | 75 | 79 |
Total excluding management judgements | 735,544 | 936 | 881 | 973 | 1,227 |
Stage 3 exposures excluding management judgements | 8,527 | 4,684 | |||
Other financial assets3 | 137,138 | 93 | |||
ECL from management judgments | 141 | ||||
Total reported at 30 June 2023 | 881,209 | 5,854 |
1 Gross balances presented on a reported basis only and includes both on- and off- balance sheet instruments; allocation between stage 1 and 2 will differ by scenario
2 Includes ECL for both on- and off- balance sheet instruments
3 Includes cash and balances at central banks, Accrued income, Other financial assets; and Assets held for sale
Page 44
Traded Risk
Traded Risk is the potential for loss resulting from activities undertaken by the Group in financial markets. Under the Enterprise Risk Management Framework, the Traded Risk Framework brings together Market Risk, Counterparty Credit Risk and Algorithmic Trading. Traded Risk Management is the core risk management function supporting market-facing businesses, predominantly Financial Markets and Treasury Markets.
Market Risk (reviewed)
Market Risk is the potential for fair value loss due to adverse moves in financial markets. The Group's exposure to Market Risk arises predominantly from the following sources:
• Trading book:
- The Group provides clients with access to financial markets, facilitation of which entails the Group taking moderate Market Risk positions. All trading teams support client activity. There are no proprietary trading teams. Hence, income earned from Market Risk-related activities is primarily driven by the volume of client activity rather than risk-taking
• Non-trading book:
- The Treasury Markets desk is required to hold a liquid assets buffer, much of which is held in high-quality marketable debt securities
- The Group has capital invested and related income streams denominated in currencies other than US dollars. To the extent that these income streams are not hedged, the Group is subject to Structural Foreign Exchange Risk which is reflected in reserves
A summary of our current policies and practices regarding Market Risk management is provided in the Principal Risks section.
The primary categories of Market Risk for the Group are:
• Interest Rate Risk: arising from changes in yield curves and implied volatilities on interest rate options
• Foreign Exchange Rate Risk: arising from changes in currency exchange rates and implied volatilities on foreign exchange options
• Commodity Risk: arising from changes in commodity prices and implied volatilities on commodity options; covering energy, precious metals, base metals and agriculture
• Credit Spread Risk: arising from changes in the price of debt instruments and credit-linked derivatives, driven by factors other than the level of risk-free interest rates
• Equity Risk: arising from changes in the prices of equities, equity indices, equity baskets and implied volatilities on related options
Market risk movements (reviewed)
Value at Risk (VaR) allows the Group to manage Market Risk across the trading book and most of the fair valued non-trading books.
The average level of total trading and non-trading VaR in H1 2023 was $53.1 million, 2.5 per cent lower than H2 2022 ($54.5 million) and 5.2 per cent higher than H1 2022 ($50.5 million). The actual level of total trading and non-trading VaR in H1 2023 was $50.2 million, 10 per cent lower than H2 2022 ($55.8 million) and 15 per cent lower than H1 2022 ($59.2 million), due to a reduction in non-trading fair value credit spread positions, offsetting the impact of increased volatility following the bank failures in Q1 2023.
For the trading book, the average level of VaR in H1 2023 was $19.4 million, 3.2 per cent higher than H2 2022 ($18.8 million) and 12.8 per cent higher than H1 2022 ($17.2 million). Trading activities have remained relatively unchanged, and client driven.
Page 45
Daily value at risk (VaR at 97.5%, one day) (reviewed)
Trading1 and non-trading2 | 6 months ended 30.06.23 | 6 months ended 31.12.22 | 6 months ended 30.06.22 | |||||||||
Average$million | High$million | Low$million | Half Year$million | Average$million | High$million | Low$million | Year End$million | Average$million | High$million | Low$million | Half Year $million | |
Interest Rate Risk | 34.2 | 47.3 | 23.2 | 46.0 | 24.7 | 29.5 | 21.0 | 24.7 | 30.8 | 42.1 | 23.3 | 24.0 |
Credit Spread Risk | 37.5 | 48.0 | 31.9 | 34.9 | 35.8 | 47.1 | 32.5 | 32.9 | 32.5 | 45.1 | 20.3 | 44.9 |
Foreign Exchange Risk | 6.0 | 8.8 | 4.5 | 6.9 | 6.5 | 10.3 | 4.8 | 6.8 | 6.5 | 8.0 | 5.4 | 5.7 |
Commodity Risk | 6.4 | 9.7 | 3.7 | 5.3 | 7.6 | 10.7 | 5.7 | 8.3 | 6.3 | 11.9 | 3.5 | 6.6 |
Equity Risk | 0.1 | 0.4 | - | 0.1 | 0.1 | 0.2 | - | 0.1 | 0.1 | 0.2 | - | 0.2 |
Total | 53.1 | 65.5 | 44.2 | 50.2 | 54.5 | 64.1 | 43.2 | 55.8 | 50.5 | 61.1 | 40.3 | 59.2 |
Trading1 | 6 months ended 30.06.23 | 6 months ended 31.12.22 | 6 months ended 30.06.22 | |||||||||
Average$million | High$million | Low$million | Half Year$million | Average$million | High$million | Low$million | Year End$million | Average$million | High$million | Low$million | Half Year$million | |
Interest Rate Risk | 11.5 | 16.9 | 7.7 | 13.0 | 8.3 | 11.7 | 5.3 | 9.0 | 7.9 | 10.5 | 5.8 | 9.0 |
Credit Spread Risk | 9.6 | 12.4 | 7.4 | 10.2 | 9.7 | 14.2 | 7.3 | 8.7 | 9.3 | 14.9 | 5.0 | 13.1 |
Foreign Exchange Risk | 6.0 | 8.8 | 4.5 | 6.9 | 6.5 | 10.3 | 4.8 | 6.8 | 6.5 | 8.0 | 5.4 | 5.7 |
Commodity Risk | 6.4 | 9.7 | 3.7 | 5.3 | 7.6 | 10.7 | 5.7 | 8.3 | 6.3 | 11.9 | 3.5 | 6.6 |
Equity Risk | - | - | - | - | - | - | - | - | - | - | - | - |
Total | 19.4 | 24.0 | 14.7 | 19.9 | 18.8 | 22.1 | 15.7 | 21.8 | 17.2 | 24.4 | 12.6 | 19.2 |
Non-trading2 | 6 months ended 30.06.23 | 6 months ended 31.12.22 | 6 months ended 30.06.22 | |||||||||
Average$million | High$million | Low$million | Half Year$million | Average$million | High$million | Low$million | Year End$million | Average$million | High$million | Low$million | Half Year$million | |
Interest Rate Risk | 30.4 | 43.1 | 19.7 | 37.7 | 21.7 | 25.4 | 18.1 | 23.5 | 30.9 | 44.5 | 22.9 | 22.9 |
Credit Spread Risk | 31.8 | 40.1 | 26.5 | 28.5 | 30.1 | 37.8 | 26.8 | 29.2 | 27.5 | 36.8 | 18.7 | 36.4 |
Equity Risk3 | 0.1 | 0.4 | - | 0.1 | 0.1 | 0.2 | - | 0.1 | 0.1 | 0.2 | - | 0.2 |
Total | 46.8 | 53.4 | 41.7 | 44.3 | 43.4 | 49.4 | 35.1 | 41.3 | 45.9 | 52.5 | 36.3 | 48.1 |
1 The trading book for Market Risk is defined in accordance with the UK onshored Capital Requirements Regulation Part 3 Title I Chapter 3, which restricts the positions permitted in the trading book
2 The non-trading book VaR does not include syndicated loans
3 Non-trading book Equity Risk VaR includes only listed equities
Risks not in VaR
In H1 2023, the main market risks not reflected in VaR were:
• Basis risks for which the historical market price data is limited and is therefore proxied, giving rise to potential proxy basis risk that is not captured in VaR
• Potential depeg risk from currencies currently pegged or managed, as the historical one-year VaR observation period does not reflect the possibility of a change in the currency regime such as sudden depegging
• Deal contingent risk where a client is granted the right to cancel a hedging trade contingent on conditions not being met within a time window
• Volatility skew risk due to movements in options volatilities at different strikes while VaR reflects only movements in at-the-money volatilities
Additional capital is set aside to cover such 'risks not in VaR'.
Backtesting
In H1 2023, there were three regulatory backtesting negative exceptions at Group level (in H2 2022 there were five and in H1 2022 there were three regulatory backtesting negative exceptions at Group level). Group exceptions occurred on:
• 16 March: After the US authorities put Silicon Valley Bank and Signature Bank into administration there were strong market reactions including notable interest rate yield rises on the 16 March
• 1 June: After announcement of planned potential economic reforms in Nigeria there were sharp movements in the offshore Naira FX market in anticipation of Naira devaluation
• 12 June: After the governor of the Central Bank of Nigeria was removed there were further sharp movements in the offshore Naira FX market
Page 46
The VaR model is currently being enhanced to increase its responsiveness to abrupt upturns in market volatility.
There have been eight Group exceptions in the previous 250 business days. This is within the 'amber zone' applied internationally to internal models by bank supervisors (Basel Committee on Banking Supervision, Supervisory framework for the use of backtesting in conjunction with the internal models approach to market risk capital requirements, January 1996).
The graph below illustrates the performance of the VaR model used in capital calculations. It compares the 99 percentile profit and loss confidence level given by the VaR model with the hypothetical profit and loss of each day given the actual market movement without taking into account any intra-day trading activity.
Average daily income earned from Market Risk-related activities1 (reviewed)
The average level of total trading daily income in H1 2023 was $13.3 million, 7 per cent higher than H2 2022 ($12.4 million) and 15 per cent lower than H1 2022 ($15.7 million). The decrease is largely attributable to lower income in Commodities in 2023 on the back of falling crude oil prices. A decline in Rates income was primarily due to refinements in valuation methodology for structured notes, implemented in Q4 2022 to align with market practices.
Trading | 6 months ended30.06.23$million | 6 months ended31.12.22$million | 6 months ended30.06.22$million |
Interest Rate Risk | 4.5 | 3.7 | 6.4 |
Credit Spread Risk | 1.5 | 2.1 | 0.7 |
Foreign Exchange Risk | 6.5 | 5.9 | 6.8 |
Commodity Risk | 0.7 | 0.8 | 1.8 |
Equity Risk | - | - | - |
Total | 13.3 | 12.4 | 15.7 |
Non-trading | 6 months ended30.06.23 | 6 months ended31.12.22 | 6 months ended30.06.22 |
Interest Rate Risk | - | (0.3) | 0.4 |
Credit Spread Risk | (0.8) | 0.2 | 1.1 |
Equity Risk | 0.1 | - | - |
Total | (0.8) | - | 1.5 |
1 Reflects total product income which is the sum of client income and own account income. Includes elements of trading income, interest income and other income which are generated from Market Risk-related activities. Rates, XVA and Treasury income are included under Interest Rate Risk whilst Credit Trading income is included under Credit Spread Risk
Counterparty Credit Risk
Counterparty Credit Risk is the potential for loss in the event of the default of a derivative counterparty, after taking into account the value of eligible collaterals and risk mitigation techniques. The Group's counterparty credit exposures are included in the Credit Risk section.
Derivative financial instruments Credit Risk mitigation
The Group enters into master netting agreements, which in the event of default result in a single amount owed by or to the counterparty through netting the sum of the positive and negative mark-to-market values of applicable derivative transactions.
In addition, the Group enters into credit support annexes (CSAs) with counterparties where collateral is deemed a necessary or desirable mitigant to the exposure. Cash collateral includes collateral called under a variation margin process from counterparties if total uncollateralised mark-to-market exposure exceeds the threshold and minimum transfer amount specified in the CSA. With certain counterparties, the CSA is reciprocal and requires us to post collateral if the overall mark-to-market values of positions are in the counterparty's favour and exceed an agreed threshold.
Page 47
Liquidity and Funding Risk
Liquidity and Funding Risk is the risk that the Group may not have sufficient stable or diverse sources of funding to meet its obligations as they fall due.
The Group's Liquidity and Funding Risk framework requires each country to ensure that it operates within predefined liquidity limits and remains in compliance with Group liquidity policies and practices, as well as local regulatory requirements.
The Group achieves this through a combination of setting Risk Appetite and associated limits, policy formation, risk measurement and monitoring, prudential and internal stress testing, governance and review.
Despite the challenging macroeconomic environment, the Group has maintained resilience and retained a robust liquidity position. The Group continues to focus on improving the quality and diversification of its funding mix and remains committed to supporting its clients.
Liquidity and Funding Risk metrics
The Group continually monitors key liquidity metrics, both on a country basis and consolidated across the Group.
The following liquidity and funding Board Risk Appetite metrics define the maximum amount and type of risk that the Group is willing to assume in pursuit of its strategy: liquidity coverage ratio (LCR), liquidity stress survival horizons, external wholesale borrowing, advances-to-deposits ratio (ADR) and net stable funding ratio (NSFR).
Liquidity coverage ratio (LCR)
The LCR is a regulatory requirement set to ensure the Group has sufficient unencumbered high-quality liquid assets to meet its liquidity needs in a 30-calendar-day liquidity stress scenario.
The Group monitors and reports its liquidity positions under the Liquidity Coverage Ratio (CRR) part of the PRA rulebook and has maintained its LCR above the prudential requirement. The Group maintained strong liquidity ratios despite a challenging macroeconomic and geopolitical environment.
At the reporting date, the Group LCR was 164 per cent (31 December 2022: 147 per cent), with a surplus to both Board-approved Risk Appetite and regulatory requirements.
Adequate liquidity was held across our footprint to meet all local prudential LCR requirements where applicable.
30.06.23$million | 31.12.22$million | |
Liquidity buffer | 197,035 | 177,037 |
Total net cash outflows | 119,879 | 120,720 |
Liquidity coverage ratio | 164% | 147% |
Stressed coverage
The Group intends to maintain a prudent and sustainable funding and liquidity position, in all countries and currencies, such that it can withstand a severe but plausible liquidity stress.
The Group's approach to managing liquidity and funding is reflected in the Board-level Risk Appetite Statement which includes the following:
"The Group should have sufficient stable and diverse sources of funding to meet its contractual and contingent obligations as they fall due."
Page 48
The Group's internal liquidity stress testing framework covers the following stress scenarios:
• Standard Chartered-specific - which captures the liquidity impact from an idiosyncratic event affecting Standard Chartered only with the rest of the market assumed to be operating normally;
• Market wide - which captures the liquidity impact from a market-wide crisis affecting all participants in a country, region or globally; and
• Combined - which assumes both Standard Chartered-specific and Market-wide events affect the Group simultaneously and hence is the most severe scenario.
All scenarios include, but are not limited to, modelled outflows for retail and wholesale funding, off-balance sheet funding risk, cross-currency funding risk, concentration risk, intraday risk, franchise risk and risks associated with a deterioration of a firm's credit rating.
Stress testing results show that a positive surplus was maintained under all scenarios at 30 June 2023, i.e. respective countries are able to survive for a period of time as defined under each scenario. The results take into account currency convertibility and portability constraints while calculating the liquidity surplus at Group level.
Standard Chartered Bank's credit ratings as at 30 June 2023 were A+ with stable outlook (Fitch), A+ with stable outlook (S&P) and A1 with stable outlook (Moody's). As of 30 June 2023, the estimated contractual outflow of a three-notch long-term ratings downgrade is $1.2 billion.
External wholesale borrowing
The Board sets a risk limit to prevent excessive reliance on wholesale borrowing. Within the definition of wholesale borrowing, limits are applied to all branches and operating subsidiaries in the Group and as at the reporting date, the Group remained within Board Risk Appetite.
Advances-to-deposits ratio
This is defined as the ratio of total loans and advances to customers relative to total customer deposits. An advances-to-deposits ratio below 100 per cent demonstrates that customer deposits exceed customer loans as a result of the emphasis placed on generating a high level of funding from customers.
The Group's advances-to-deposits ratio has decreased by 3.8 per cent to 53.6 per cent, driven by an increase in customer deposits of 2 per cent and combined with a reduction of 4 per cent in customer loans and advances. Deposits from customers as at 30 June 2023 are $484,594 million (31 December 2022: $473,383 million).
30.06.23$million | 31.12.22$million | |
Total loans and advances to customers1,2 | 259,806 | 271,897 |
Total customer accounts3 | 484,593 | 473,383 |
Advances-to-deposits ratio | 53.6% | 57.4% |
1 Excludes reverse repurchase agreement and other similar secured lending of $10,950 million and includes loans and advances to customers held at fair value through profit and loss of $5,368 million
2 Loans and advances to customers for the purpose of the advances-to-deposits ratio excludes $24,749 million of approved balances held with central banks, confirmed as repayable at the point of stress (31 December 2022: $20,798 million)
3 Includes customer accounts held at fair value through profit or loss of $15,026 million (31 December 2022: $11,706 million)
Net stable funding ratio (NSFR)
The NSFR is a PRA regulatory requirement that stipulates institutions to maintain a stable funding profile in relation to an assumed duration of their assets and off-balance sheet activities over a one-year horizon. It is the ratio between the amount of available stable funding (ASF) and the amount of required stable funding (RSF). ASF factors are applied to balance sheet liabilities and capital, based on their perceived stability and the amount of stable funding they provide. Likewise, RSF factors are applied to assets and off-balance sheet exposures according to the amount of stable funding they require. The regulatory requirements for NSFR are to maintain a ratio of at least 100 per cent. The average ratio for the past four quarters is 133.4 per cent.
Page 49
Liquidity pool
The liquidity value of the Group's LCR eligible liquidity pool at the reporting date was $197 billion. The figures in the table below account for haircuts, currency convertibility and portability constraints per PRA rules for transfer restrictions, and therefore are not directly comparable with the consolidated balance sheet. A liquidity pool is held to offset stress outflows as defined in the Liquidity Coverage Ratio (CRR) part of the PRA rulebook.
30.06.23 | ||||
Asia$million | Africa &Middle East$million | Europe &Americas$million | Total$million | |
Level 1 securities | ||||
Cash and balances at central banks | 39,730 | 2,133 | 60,950 | 102,813 |
Central banks, governments/public sector entities | 36,974 | 2,091 | 19,412 | 58,477 |
Multilateral development banks and international organisations | 6,033 | 1,019 | 11,229 | 18,281 |
Other | 6,728 | 33 | 387 | 7,148 |
Total Level 1 securities | 89,465 | 5,276 | 91,978 | 186,719 |
Level 2A securities | 4,005 | 202 | 5,302 | 9,509 |
Level 2B securities | 22 | 46 | 739 | 807 |
Total LCR eligible assets | 93,492 | 5,524 | 98,019 | 197,035 |
31.12.22 | ||||
Asia$million | Africa &Middle East$million | Europe &Americas$million | Total$million | |
Level 1 securities | ||||
Cash and balances at central banks | 34,101 | 1,066 | 36,522 | 71,689 |
Central banks, governments/public sector entities | 50,881 | 2,712 | 23,680 | 77,273 |
Multilateral development banks and international organisations | 3,510 | 837 | 10,843 | 15,190 |
Other | 37 | 7 | 1,430 | 1,474 |
Total Level 1 securities | 88,529 | 4,622 | 72,475 | 165,626 |
Level 2A securities | 4,044 | 139 | 6,033 | 10,216 |
Level 2B securities | 71 | 21 | 1,103 | 1,195 |
Total LCR eligible assets | 92,644 | 4,782 | 79,611 | 177,037 |
Liquidity analysis of the Group's balance sheet (reviewed)
Contractual maturity of assets and liabilities
The following table presents assets and liabilities by maturity groupings based on the remaining period to the contractual maturity date as at the balance sheet date on a discounted basis. Contractual maturities do not necessarily reflect actual repayments or cashflows.
Within the tables below, cash and balances with central banks, interbank placements and investment securities that are fair value through other comprehensive income are used by the Group principally for liquidity management purposes.
As at the reporting date, assets remain predominantly short-dated, with 63 per cent maturing in less than one year. The less than six-month cumulative net funding gap improved by $31 billion as of 30 June 2023 compared to 31 December 2022.
Page 50
30.06.23 | |||||||||
One month or less$million | Between one month and three months$million | Between three months and six months$million | Between six months and nine months$million | Between nine months and one year$million | Betweenone year and two years$million | Betweentwo years and five years$million | More thanfive years and undated$million | Total$million | |
Assets | |||||||||
Cash and balances at central banks | 78,466 | - | - | - | - | - | - | 7,873 | 86,339 |
Derivative financial instruments | 11,401 | 12,763 | 8,659 | 6,973 | 4,159 | 6,028 | 6,700 | 3,705 | 60,388 |
Loans and advances to banks1,2 | 32,829 | 22,721 | 12,501 | 4,399 | 3,791 | 1,982 | 2,148 | 824 | 81,195 |
Loans and advances to customers1,2 | 92,357 | 44,382 | 23,542 | 14,018 | 14,454 | 22,554 | 29,889 | 94,627 | 335,823 |
Investment securities1 | 11,393 | 26,138 | 18,326 | 16,521 | 9,952 | 23,709 | 42,727 | 51,872 | 200,638 |
Other assets1 | 24,683 | 29,214 | 1,107 | 206 | 616 | 10 | 39 | 18,453 | 74,328 |
Total assets | 251,129 | 135,218 | 64,135 | 42,117 | 32,972 | 54,283 | 81,503 | 177,354 | 838,711 |
Liabilities | |||||||||
Deposits by banks1,3 | 31,444 | 2,391 | 3,621 | 734 | 305 | 1,051 | 1,246 | 6 | 40,798 |
Customer accounts1,4 | 380,956 | 52,106 | 30,113 | 13,484 | 9,704 | 8,263 | 33,713 | 1,452 | 529,791 |
Derivative financial instruments | 10,789 | 13,072 | 8,826 | 7,543 | 3,935 | 6,262 | 7,616 | 4,980 | 63,023 |
Senior debt5 | 1,011 | 1,615 | 1,056 | 1,306 | 1,243 | 9,843 | 18,734 | 11,281 | 46,089 |
Other debt securities in issue1 | 3,795 | 6,068 | 9,369 | 5,201 | 2,016 | 733 | 775 | 176 | 28,133 |
Other liabilities | 25,337 | 24,018 | 1,323 | 969 | 1,058 | 2,113 | 1,408 | 13,105 | 69,331 |
Subordinated liabilities and other borrowed funds | 5 | 70 | 15 | 1,158 | 41 | 858 | 1,917 | 7,801 | 11,865 |
Total liabilities | 453,337 | 99,340 | 54,323 | 30,395 | 18,302 | 29,123 | 65,409 | 38,801 | 789,030 |
Net liquidity gap | (202,208) | 35,878 | 9,812 | 11,722 | 14,670 | 25,160 | 16,094 | 138,553 | 49,681 |
1 Loans and advances, investment securities, other assets, deposits by banks, customer accounts and debt securities in issue include financial instruments held at fair value through profit or loss, see Note 13 Financial instruments
2 Loans and advances include reverse repurchase agreements and other similar secured lending of $87.1 billion
3 Deposits by banks include repurchase agreements and other similar secured borrowing of $10.3 billion
4 Customer accounts include repurchase agreements and other similar secured borrowing of $45.2 billion
5 Senior debt maturity profiles are based upon contractual maturity, which may be later than call options over the debt held by the Group
31.12.22 | |||||||||
One month or less$million | Between one month and three months$million | Between three months and six months$million | Between six months and nine months$million | Betweennine months and one year$million | Betweenone year and two years$million | Betweentwo years and five years$million | More thanfive years and undated$million | Total$million | |
Assets | |||||||||
Cash and balances at central banks | 49,097 | - | - | - | - | - | - | 9,166 | 58,263 |
Derivative financial instruments | 15,558 | 12,030 | 8,352 | 4,446 | 3,602 | 6,026 | 8,410 | 5,293 | 63,717 |
Loans and advances to banks1,2 | 24,135 | 15,293 | 11,595 | 4,971 | 4,138 | 2,608 | 1,022 | 687 | 64,449 |
Loans and advances to customers1,2 | 96,351 | 58,605 | 27,751 | 12,540 | 13,444 | 19,150 | 33,413 | 96,476 | 357,730 |
Investment securities | 14,175 | 26,008 | 23,364 | 13,024 | 12,891 | 22,805 | 41,217 | 52,756 | 206,240 |
Other assets1 | 15,210 | 31,276 | 1,341 | 181 | 698 | 89 | 23 | 20,705 | 69,523 |
Total assets | 214,526 | 143,212 | 72,403 | 35,162 | 34,773 | 50,678 | 84,085 | 185,083 | 819,922 |
Liabilities | |||||||||
Deposits by banks1,3 | 29,733 | 2,042 | 2,245 | 871 | 349 | 1,432 | 144 | 7 | 36,823 |
Customer accounts1,4 | 402,069 | 49,769 | 25,110 | 15,961 | 15,216 | 7,830 | 2,451 | 1,823 | 520,229 |
Derivative financial instruments | 15,820 | 15,810 | 8,645 | 5,002 | 4,102 | 6,795 | 7,904 | 5,784 | 69,862 |
Senior debt5 | 204 | 342 | 509 | 963 | 711 | 5,855 | 19,673 | 12,086 | 40,343 |
Other debt securities in issue1 | 2,758 | 5,504 | 8,732 | 7,316 | 2,935 | 1,088 | 870 | 268 | 29,471 |
Other liabilities | 19,857 | 24,725 | 1,616 | 521 | 503 | 902 | 1,043 | 10,296 | 59,463 |
Subordinated liabilities and other borrowed funds | 2,004 | 105 | 22 | 248 | 25 | 1,882 | 2,045 | 7,384 | 13,715 |
Total liabilities | 472,445 | 98,297 | 46,879 | 30,882 | 23,841 | 25,784 | 34,130 | 37,648 | 769,906 |
Net liquidity gap | (257,919) | 44,915 | 25,524 | 4,280 | 10,932 | 24,894 | 49,955 | 147,435 | 50,016 |
1 Loans and advances, investment securities, other assets, deposits by banks, customer accounts and debt securities in issue include financial instruments held at fair value through profit or loss, see Note 13 Financial instruments
2 Loans and advances include reverse repurchase agreements and other similar secured lending of $90 billion
3 Deposits by banks include repurchase agreements and other similar secured borrowing of $7.0 billion
4 Customer accounts include repurchase agreements and other similar secured borrowing of $46.8 billion
5 Senior debt maturity profiles are based upon contractual maturity, which may be later than call options over the debt held by the Group
Page 51
Behavioural maturity of financial assets and liabilities
The cashflows presented in the previous section reflect the cashflows that will be contractually payable over the residual maturity of the instruments. However, contractual maturities do not necessarily reflect the timing of actual repayments or cashflow. In practice, certain assets and liabilities behave differently from their contractual terms, especially for short-term customer accounts, credit card balances and overdrafts, which extend to a longer period than their contractual maturity. On the other hand, mortgage balances tend to have a shorter repayment period than their contractual maturity date. Expected customer behaviour is assessed and managed on a country basis using qualitative and quantitative techniques, including analysis of observed customer behaviour over time.
Maturity of financial liabilities on an undiscounted basis (reviewed)
The following table analyses the contractual cashflows payable for the Group's financial liabilities by remaining contractual maturities on an undiscounted basis. The financial liability balances in the table below will not agree with the balances reported in the consolidated balance sheet as the table incorporates all contractual cashflows, on an undiscounted basis, relating to both principal and interest payments. Derivatives not treated as hedging derivatives are included in the 'On demand' time bucket and not by contractual maturity.
Within the 'More than five years and undated' maturity band are undated financial liabilities, the majority of which relate to subordinated debt, on which interest payments are not included as this information would not be meaningful, given the instruments are undated. Interest payments on these instruments are included within the relevant maturities up to five years.
30.06.23 | |||||||||
One month or less$million | Between one month and three months$million | Between three months and six months$million | Between six months and nine months$million | Betweennine months and one year$million | Betweenone year and two years$million | Betweentwo years and five years$million | More thanfive years and undated$million | Total$million | |
Deposits by banks | 31,429 | 2,400 | 3,676 | 753 | 308 | 1,061 | 1,246 | 527 | 41,400 |
Customer accounts | 381,616 | 52,559 | 30,771 | 13,884 | 10,024 | 8,560 | 34,175 | 2,594 | 534,183 |
Derivative financial instruments1 | 59,397 | 36 | 164 | 607 | 68 | 288 | 1,018 | 1,445 | 63,023 |
Debt securities in issue | 5,008 | 7,714 | 10,834 | 6,849 | 3,656 | 11,521 | 21,699 | 12,685 | 79,966 |
Subordinated liabilities and other borrowed funds | 59 | 164 | 29 | 1,191 | 46 | 1,139 | 2,608 | 13,108 | 18,344 |
Other liabilities | 20,968 | 25,277 | 1,216 | 965 | 1,048 | 2,113 | 1,408 | 11,871 | 64,866 |
Total liabilities | 498,477 | 88,150 | 46,690 | 24,249 | 15,150 | 24,682 | 62,154 | 42,230 | 801,782 |
31.12.22 | |||||||||
One month or less$million | Between one month and three months$million | Between three months and six months$million | Between six months and nine months$million | Betweennine months and one year$million | Betweenone year and two years$million | Betweentwo years and five years$million | More thanfive years and undated$million | Total$million | |
Deposits by banks | 29,742 | 2,048 | 2,275 | 876 | 362 | 1,455 | 144 | 8 | 36,910 |
Customer accounts | 401,893 | 49,196 | 24,713 | 15,614 | 15,283 | 8,280 | 5,937 | 2,591 | 523,507 |
Derivative financial instruments1 | 65,912 | 48 | 12 | 116 | 213 | 940 | 1,185 | 1,436 | 69,862 |
Debt securities in issue | 3,060 | 5,912 | 9,631 | 8,574 | 3,979 | 7,844 | 22,259 | 18,465 | 79,724 |
Subordinated liabilities and other borrowed funds | 2,097 | 165 | 44 | 273 | 28 | 2,029 | 2,610 | 14,004 | 21,250 |
Other liabilities | 17,275 | 25,751 | 1,517 | 504 | 496 | 895 | 901 | 9,669 | 57,008 |
Total liabilities | 519,979 | 83,120 | 38,192 | 25,957 | 20,361 | 21,443 | 33,036 | 46,173 | 788,261 |
1 Derivatives are on a discounted basis
Interest Rate Risk in the Banking Book
The following table provides the estimated impact to a hypothetical base case projection of the Group's earnings under the following scenarios:
• A 50 basis point parallel interest rate shock (up and down) to the current market-implied path of rates, across all yield curves
• A 100 basis point parallel interest rate shock (up) to the current market-implied path of rates, across all yield curves
These interest rate shock scenarios assume all other economic variables remain constant. The sensitivities shown represent the estimated change to a hypothetical base case projected net interest income (NII), plus the change in interest rate implied income and expense from FX swaps used to manage banking book currency positions, under the different interest rate shock scenarios.
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The base case projected NII is based on the current market-implied path of rates and forward rate expectations. The NII sensitivities below stress this base case by a further 50 or 100bps. Actual observed interest rate changes will lag behind, and likely deviate from, current market expectation. Accordingly, the shocked NII sensitivity does not represent a forecast of the Group's net interest income.
The interest rate sensitivities are indicative stress tests and based on simplified scenarios, estimating the aggregate impact of an unanticipated, instantaneous parallel shock across all yield curves over a one-year horizon, including the time taken to implement changes to pricing before becoming effective. The assessment assumes that the size and mix of the balance sheet remain constant and that there are no specific management actions in response to the change in rates. No assumptions are made in relation to the impact on credit spreads in a changing rate environment.
Significant modelling and behavioural assumptions are made regarding scenario simplification, market competition, pass-through rates, asset and liability re-pricing tenors, and price flooring. The assumptions that interest rates of all currencies and maturities shift by the same amount concurrently, and that no actions are taken to mitigate the impacts arising from this are considered unlikely. Reported sensitivities will vary over time due to a number of factors including changes in balance sheet composition, customer behaviour and risk management strategy, the interest rates assumed in setting the base case, and other market conditions. Therefore, while the NII sensitivities are a relevant measure of the Group's interest rate exposure, they should not be considered an income or profit forecast.
Estimated one-year impact to earnings from a parallel shiftin yield curves at the beginning of the period of: | 30.06.23 | ||||||
USD bloc$million | HKD bloc$million | SGD bloc$million | KRW bloc$million | CNY bloc$million | Other currency bloc$million | Total$million | |
+ 50 basis points | 130 | 40 | 40 | 20 | 30 | 160 | 420 |
- 50 basis points | (130) | (40) | (40) | (30) | (30) | (160) | (430) |
+ 100 basis points | 250 | 80 | 90 | 40 | 50 | 310 | 820 |
Estimated one-year impact to earnings from a parallel shiftin yield curves at the beginning of the period of: | 31.12.22 | ||||||
USD bloc$million | HKD bloc$million | SGD bloc$million | KRW bloc$million | CNY bloc$million | Other currency bloc$million | Total$million | |
+ 50 basis points | 80 | 20 | 40 | 50 | 30 | 150 | 370 |
- 50 basis points | (80) | (20) | (40) | (60) | (30) | (140) | (370) |
+ 100 basis points | 160 | 40 | 90 | 100 | 50 | 300 | 740 |
As at 30 June 2023, the Group estimates the one-year impact of an instantaneous, parallel increase across all yield curves of 50 basis points to increase projected NII by $420 million. The equivalent impact from a parallel decrease of 50 basis points would result in a reduction in projected NII of $430 million. The Group estimates the one-year impact of an instantaneous, parallel increase across all yield curves of 100 basis points to increase projected NII by $820 million.
The benefit from rising interest rates is primarily from reinvesting at higher yields and from assets re-pricing faster and to a greater extent than deposits. NII sensitivity in all scenarios has increased versus 31 December 2022, which is a result of the ongoing roll-down of short-term USD hedges.
Operational and Technology Risk
Operational and Technology Risk is defined as the "Potential for loss from inadequate or failed internal processes, technology events, human error, or from the impact of external events (including legal risks)". Operational risk may occur anywhere in the Group, including third-party processes.
Operational and Technology Risk profile
Risk management practices help the business grow safely and ensures governance and management of Operational and Technology Risk through the delivery and embedding of effective frameworks and policies, together with continuous oversight and assurance. Managing Operational and Technology Risk well makes the Group more efficient and enables it to offer better and safer service to its customers. The Group's Operational and Technology Risk Management Framework is designed to enable it to govern, identify, measure, monitor and test, manage and report on its Operational and Technology risk. The Group continues to ensure the Operational and Technology Risk Framework supports the business and functions in effectively managing risk and controls within risk appetite to meet their strategic objectives.
Page 53
Overall, the Group's Operational Risk profile has remained stable with the quality of risk understanding and identification improving. The Group continues to demonstrate progress in visibility of risks and risk management through the ongoing implementation of a simplified and standardised risk taxonomy. The risk taxonomy implementation will help ensure risks are consistently identified, described and assessed as well as enable improved risk aggregation and reporting.
Operational and Technology Risk continues to be heighted in areas such Information and Cyber Security, Data Management and Transaction Processing which are subject to ongoing control enhancement programmes. Other key areas of focus are Change, Systems Health/Technology Risk, Third Party Risk, Financial Crime and Regulatory Compliance. The Group is implementing controls which are designed to address these risks and significant efforts continue to enhance the control environment.
The Group continues to monitor and manage operational and technology risks associated with the external environment such as geopolitical factors and the increasing risk of cyber-attacks. Digitalisation, regulatory expectations, and the changing technology landscape remain key emerging areas on the risk radar for the Group, to keep pace with new business developments whilst ensuring risk and control frameworks evolve accordingly. The Group continues to strengthen its risk management processes in order to understand the full spectrum of risks in the operating environment, enhance its defences and improve resiliency.
Other principal risks
Losses arising from operational failures for other principal and integrated risks are reported as operational losses. Operational losses do not include Operational Risk-related credit impairments.
Page 54
Capital review
The Capital review provides an analysis of the Group's capital and leverage position, and requirements.
Capital summary
The Group's capital, leverage and minimum requirements for own funds and eligible liabilities (MREL) position is managed within the Board-approved risk appetite. The Group is well capitalised with low leverage and high levels of loss-absorbing capacity.
30.06.23 | 31.12.22 | |
CET1 capital | 14.0% | 14.0% |
Tier 1 capital | 16.2% | 16.6% |
Total capital | 21.1% | 21.7% |
Leverage ratio | 4.8% | 4.8% |
MREL ratio | 32.1% | 32.1% |
Risk-weighted assets (RWA) $million | 249,117 | 244,711 |
The Group's capital, leverage and MREL positions were all above current requirements and Board-approved risk appetite. For further detail see the Capital section in the Standard Chartered PLC Pillar 3 Disclosures for H1 2023.
The Group's CET1 capital ratio increased 5 basis points to 14.0 percent of RWA since FY2022. Profits, RWA optimisations, movements in FVOCI and a decrease in regulatory deductions were partly offset by distributions (including ordinary share buybacks of $1.0 billion during the period), and adverse movements in FX translation reserves.
The PRA updated the Group's Pillar 2A requirement during Q4 2022. As at 30 June 2023 the Group's Pillar 2A was 3.7 percent of RWA, of which at least 2.1 per cent must be held in CET1 capital. The Group's minimum CET1 capital requirement was 10.4 per cent at H1 2023.
The Group CET1 capital ratio at H1 2023 reflects the share buy-back of $1 billion that was announced as part of FY2022 results which is currently ongoing. The CET1 capital ratio also includes an accrual for the FY 2023 interim dividend. The Board has recommended an interim dividend for H1 2023 of $168 million or 6 cents per share representing a third of the total 2022 dividend.
In addition, the Board has announced a further share buy-back of $1 billion, the impact of which will be reflected in the Group's CET1 capital position in the third quarter of 2023 by around 40bps.
The Group expects to manage CET1 capital dynamically within the 13-14 per cent target range, in support of our aim of delivering future sustainable shareholder distributions.
The Group's MREL requirement as at H1 2023 was equivalent to 27.3 per cent of RWA. This is composed of a minimum requirement of 23.5 per cent of RWA and the Group's combined buffer (comprising the capital conservation buffer, the G-SII buffer and the countercyclical buffer). The Group's MREL ratio was 32.1 per cent of RWA and 9.4 per cent of leverage exposure at H1 2023.
During the period, the Group successfully raised $3.7 billion of MREL eligible senior debt securities from its holding company, Standard Chartered PLC. The Group raised an additional $2.5 billion in senior securities post the balance sheet date, i.e. not included in the H1 2023 MREL position.
The Group is a G-SII, with a 1.0 per cent G-SII CET1 capital buffer. The Standard Chartered PLC G-SII disclosure is published at: sc.com/en/investors/financial-results.
Page 55
Capital base1 (reviewed)
30.06.23$million | 31.12.22$million | |
CET1 capital instruments and reserves | ||
Capital instruments and the related share premium accounts | 5,389 | 5,436 |
Of which: share premium accounts | 3,989 | 3,989 |
Retained earnings | 26,549 | 25,154 |
Accumulated other comprehensive income (and other reserves) | 7,932 | 8,165 |
Non-controlling interests (amount allowed in consolidated CET1) | 190 | 189 |
Independently audited year-end profits | 2,386 | 2,988 |
Foreseeable dividends | (377) | (648) |
CET1 capital before regulatory adjustments | 42,069 | 41,284 |
CET1 regulatory adjustments | ||
Additional value adjustments (prudential valuation adjustments) | (693) | (854) |
Intangible assets (net of related tax liability) | (5,825) | (5,802) |
Deferred tax assets that rely on future profitability (excludes those arising from temporary differences) | (86) | (76) |
Fair value reserves related to net losses on cash flow hedges | 317 | 564 |
Deduction of amounts resulting from the calculation of excess expected loss | (787) | (684) |
Net gains on liabilities at fair value resulting from changes in own credit risk | 203 | 63 |
Defined-benefit pension fund assets | (134) | (116) |
Fair value gains arising from the institution's own credit risk related to derivative liabilities | (64) | (90) |
Exposure amounts which could qualify for risk weighting of 1,250% | (52) | (103) |
Other regulatory adjustments to CET1 capital2 | (52) | (29) |
Total regulatory adjustments to CET1 | (7,173) | (7,127) |
CET1 capital | 34,896 | 34,157 |
Additional Tier 1 capital (AT1) instruments | 5,512 | 6,504 |
AT1 regulatory adjustments | (20) | (20) |
Tier 1 capital | 40,388 | 40,641 |
Tier 2 capital instruments | 12,311 | 12,540 |
Tier 2 regulatory adjustments | (30) | (30) |
Tier 2 capital | 12,281 | 12,510 |
Total capital | 52,669 | 53,151 |
Total risk-weighted assets (unaudited) | 249,117 | 244,711 |
1 Capital base is prepared on the regulatory scope of consolidation
2 Other regulatory adjustments to CET1 capital includes Insufficient coverage for non-performing exposures of $(52) million
Page 56
Movement in total capital (reviewed)
6 months ended 30.06.23$million | 6 months ended 31.12.22$million | |
CET1 at 1 January/1 July | 34,157 | 38,362 |
Ordinary shares issued in the period and share premium | - | - |
Share buy-back | (1,000) | (1,258) |
Profit for the period | 2,386 | 2,988 |
Foreseeable dividends deducted from CET1 | (377) | (648) |
Difference between dividends paid and foreseeable dividends | 4 | (301) |
Movement in goodwill and other intangible assets | (23) | (1,410) |
Foreign currency translation differences | (641) | (1,892) |
Non-controlling interests | 1 | (12) |
Movement in eligible other comprehensive income | 410 | (1,224) |
Deferred tax assets that rely on future profitability | (10) | 74 |
Decrease/(increase) in excess expected loss | (103) | (104) |
Additional value adjustments (prudential valuation adjustment) | 161 | (189) |
IFRS 9 transitional impact on regulatory reserves including day one | (106) | (146) |
Exposure amounts which could qualify for risk weighting | 51 | (67) |
Fair value gains arising from the institution's own Credit Risk related to derivative liabilities | 26 | (30) |
Others | (40) | 14 |
CET1 at 30 June/31 December | 34,896 | 34,157 |
AT1 at 1 January/1 July | 6,484 | 6,791 |
Net issuances (redemptions) | (1,000) | 241 |
Foreign currency translation difference | 8 | 9 |
Excess on AT1 grandfathered limit (ineligible) | - | (557) |
AT1 at 30 June/31 December | 5,492 | 6,484 |
Tier 2 capital at 1 January/1 July | 12,510 | 12,491 |
Regulatory amortisation | 1,703 | 778 |
Net issuances (redemptions) | (2,042) | (1,098) |
Foreign currency translation difference | 110 | (337) |
Tier 2 ineligible minority interest | (3) | 102 |
Recognition of ineligible AT1 | - | 557 |
Others | 3 | 17 |
Tier 2 capital at 30 June/31 December | 12,281 | 12,510 |
Total capital at 30 June/31 December | 52,669 | 53,151 |
The main movements in capital in the period were:
• CET1 capital increased by $0.7 billion as retained profits of $2.4 billion, movement in FVOCI of $0.3 billion and a decrease in regulatory deductions $0.1 billion were partly offset by share buy-backs of $1.0 billion, distributions paid and foreseeable of $0.4 billion and foreign currency translation impact of $0.6 billion.
• AT1 capital decreased by $1.0 billion following the redemption of $1.0 billion of 7.75 per cent securities in April 2023.
• Tier 2 capital decreased by $0.2 billion due to an increase in regulatory amortisation of bullet Tier 2 securities.
Page 57
Risk-weighted assets by business
30.06.23 | ||||
Credit risk$million | Operational risk$million | Market risk$million | Total risk$million | |
Corporate, Commercial & Institutional Banking | 109,343 | 18,083 | 19,832 | 147,258 |
Consumer, Private & Business Banking | 41,881 | 8,783 | - | 50,664 |
Ventures | 1,888 | 35 | 2 | 1,925 |
Central & Other items | 44,039 | 960 | 4,271 | 49,270 |
Total risk-weighted assets | 197,151 | 27,861 | 24,105 | 249,117 |
31.12.22 | ||||
Credit risk$million | Operational risk$million | Market risk$million | Total risk$million | |
Corporate, Commercial & Institutional Banking | 110,103 | 17,039 | 16,440 | 143,582 |
Consumer, Private & Business Banking | 42,091 | 8,639 | - | 50,730 |
Ventures | 1,350 | 6 | 2 | 1,358 |
Central & Other items | 43,311 | 1,493 | 4,237 | 49,041 |
Total risk-weighted assets | 196,855 | 27,177 | 20,679 | 244,711 |
Risk-weighted assets by geographic region
30.06.23$million | 31.12.22$million | |
Asia | 155,410 | 150,816 |
Africa & Middle East | 41,068 | 40,716 |
Europe & Americas | 48,787 | 50,174 |
Central & Other items | 3,852 | 3,005 |
Total risk-weighted assets | 249,117 | 244,711 |
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Movement in risk-weighted assets
Credit risk | Operational risk$million | Market risk$million | Total risk$million | |||||
Corporate, Commercial &Institutional Banking$million | Consumer, Private & Business Banking$million | Ventures $million | Central & Other items$million | Total$million | ||||
31 December 2021 | 125,813 | 42,731 | 756 | 50,288 | 219,588 | 27,116 | 24,529 | 271,233 |
At 1 January 2022 | 125,813 | 42,731 | 756 | 50,288 | 219,588 | 27,116 | 24,529 | 271,233 |
Asset growth & mix | (2,392) | 58 | 278 | (4,289) | (6,345) | - | - | (6,345) |
Asset quality | (5,648) | (32) | - | (163) | (5,843) | - | - | (5,843) |
Risk-weighted assets efficiencies | - | - | - | - | - | - | - | - |
Model updates | 2,073 | 2,628 | - | - | 4,701 | - | (1,000) | 3,701 |
Methodology and policy changes | 2,024 | 85 | - | 38 | 2,147 | - | 1,100 | 3,247 |
Acquisitions and disposals | - | - | - | - | - | - | - | - |
Foreign currency translation | (4,081) | (1,591) | - | (2,392) | (8,064) | - | - | (8,064) |
Others, including non-credit risk movements | - | - | - | (1,005) | (1,005) | 61 | (1,903) | (2,847) |
At 30 June 2022 | 117,789 | 43,879 | 1,034 | 42,477 | 205,179 | 27,177 | 22,726 | 255,082 |
Asset growth & mix | (10,821) | (1,043) | 316 | (5,744) | (17,292) | 0 | - | (17,292) |
Asset quality | 1,390 | 463 | - | 7,507 | 9,360 | - | - | 9,360 |
Risk-weighted assets efficiencies | - | - | - | - | - | - | - | - |
Model updates | 2,256 | (1,208) | - | - | 1,048 | - | - | 1,048 |
Methodology and policy changes | - | - | - | 55 | 55 | - | 400 | 455 |
Acquisitions and disposals | - | - | - | - | - | - | - | - |
Foreign currency translation | (802) | - | - | (984) | (1,786) | - | - | (1,786) |
Others, including non-credit risk movements | 291 | - | - | - | 291 | - | (2,447) | (2,156) |
At 31 December 2022 | 110,103 | 42,091 | 1,350 | 43,311 | 196,855 | 27,177 | 20,679 | 244,711 |
Asset growth & mix | (726) | 693 | 538 | 2,000 | 2,505 | - | - | 2,505 |
Asset quality | (157) | (125) | - | 420 | 138 | - | - | 138 |
Risk-weighted assets efficiencies | - | - | - | - | - | - | - | - |
Model updates | 800 | - | - | - | 800 | - | 700 | 1,500 |
Methodology and policy changes | - | (200) | - | - | (200) | - | - | (200) |
Acquisitions and disposals | - | - | - | - | - | - | - | - |
Foreign currency translation | (677) | (578) | - | (1,692) | (2,947) | - | - | (2,947) |
Others, including non-credit risk movements | - | - | - | - | - | 684 | 2,726 | 3,410 |
At 30 June 2023 | 109,343 | 41,881 | 1,888 | 44,039 | 197,151 | 27,861 | 24,105 | 249,117 |
Movements in risk-weighted assets
RWA increased by $4.4 billion, or 1.8 per cent from 31 December 2022 to $249.1 billion. This was mainly due to an increase in Market Risk RWA of $3.4 billion, Operational Risk RWA of $0.7 billion and an increase in Credit Risk RWA of $0.3 billion.
Corporate, Commercial & Institutional Banking
Credit Risk RWA decreased by $0.8 billion, or 0.7 per cent from 31 December 2022 to $109.3 billion mainly due to:
• $0.7 billion decrease from changes in asset growth & mix of which:
- $6.4 billion decrease from optimisation actions including reduction in lower returning portfolios
- $4.4 billion increase from asset balance growth
- $1.3 billion increase from derivatives
• $0.7 billion decrease from foreign currency translation
• $0.2 billion decrease mainly due to an improvement in asset quality reflecting client upgrades in Asia and Europe and Americas, partially offset by sovereign downgrades in Africa & Middle East
• $0.8 billion increase from a model change relating to certain facilities in Financial Markets and Lending
Page 59
Consumer, Private & Business Banking
Credit Risk RWA decreased by $0.2 billion, or 0.5 per cent from 31 December 2022 to $41.9 billion mainly due to:
• $0.6 billion decrease from foreign currency translation
• $0.2 billion decrease from methodology change relating to an unsecured lending portfolio in Africa & Middle East
• $0.1 billion decrease mainly due to improvement in asset quality mainly in Asia
• $0.7 billion increase from changes in asset growth & mix mainly from Asia
Ventures
Ventures is comprised of Mox Bank Limited, Trust Bank and SC Ventures. Credit Risk RWA increased by $0.5 billion, or 39.9 per cent from 31 December 2022 to $1.9 billion from asset balance growth, mainly from SC Ventures
Central & other items
Central & Other items RWA mainly relate to the Treasury Market's liquidity portfolio, equity investments and current & deferred tax assets.
Credit Risk RWA increased by $0.7 billion, or 1.7 per cent from 31 December 2022 to $44.0 billion mainly due to:
• $2.0 billion increase from asset balances mainly from Asia
• $0.4 billion increase due to deterioration in asset quality mainly from sovereign downgrades in Africa & Middle East
• $1.7 billion decrease from foreign currency translation
Market Risk
Total Market Risk RWA increased by $3.4 billion, or 16.6 per cent from 31 December 2022 to $24.1 billion due to:
• $2.4 billion increase in Standardised Approach (SA) Specific Interest Rate Risk RWA due to increases in the traded credit portfolio
• $0.8 billion increase in Internal Models Approach (IMA) capital addons for Risks not in VaR
• $0.2 billion increase in SA Commodities risk with increased energy transition positions
Operational Risk
Operational Risk RWA increased by $0.7 billion, or 2.5 per cent from 31 December 2022 to $27.9 billion mainly due to marginal increase in average income as measured over a rolling three-year time horizon for certain products.
Leverage ratio
The Group's leverage ratio, which excludes qualifying claims on central banks, was 4.8 per cent at H1 2023, which was above the current minimum requirement of 3.7 per cent. The leverage ratio was 2 basis points higher than FY 2022. Leverage exposure decrease of $9.3 billion was largely driven by optimisation initiatives. End point Tier 1 decreased by $0.3 billion as CET1 capital increased by $0.7 billion and AT1 capital decreased by $1.0 billion following the redemption of $1.0 billion of 7.75 per cent securities in April 2023.
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Leverage ratio
30.06.23$million | 31.12.22$million | |
Tier 1 capital (transitional) | 40,388 | 40,641 |
Additional Tier 1 capital subject to phase out | - | - |
Tier 1 capital (end point) | 40,388 | 40,641 |
Derivative financial instruments | 60,388 | 63,717 |
Derivative cash collateral | 9,304 | 12,515 |
Securities financing transactions (SFTs) | 87,118 | 89,967 |
Loans and advances and other assets | 681,901 | 653,723 |
Total on-balance sheet assets | 838,711 | 819,922 |
Regulatory consolidation adjustments1 | (102,523) | (71,728) |
Derivatives adjustments | ||
Derivatives netting | (44,747) | (47,118) |
Adjustments to cash collateral | (7,267) | (10,640) |
Net written credit protection | 931 | 548 |
Potential future exposure on derivatives | 39,239 | 35,824 |
Total derivatives adjustments | (11,844) | (21,386) |
Counterparty risk leverage exposure measure for SFTs | 7,591 | 15,553 |
Off-balance sheet items | 120,355 | 119,049 |
Regulatory deductions from Tier 1 capital | (7,311) | (7,099) |
Total exposure measure excluding claims on central banks | 844,979 | 854,311 |
Leverage ratio excluding claims on central banks (%) | 4.8% | 4.8% |
Average leverage exposure measure excluding claims on central banks | 842,493 | 864,605 |
Average leverage ratio excluding claims on central banks (%) | 4.7% | 4.7% |
Countercyclical leverage ratio buffer | 0.1% | 0.1% |
G-SII additional leverage ratio buffer | 0.4% | 0.4% |
1 Includes adjustment for qualifying central bank claims
Page 61
Statement of directors' responsibilities
We confirm that to the best of our knowledge:
• The condensed consolidated interim financial statements have been prepared in accordance with UK-adopted IAS 34 Interim Financial Reporting and ISA 34 as adopted by the EU.
• The interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the six months ended 30 June 2023 and their impact on the condensed consolidated interim financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place during the six months ended 30 June 2023 that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could have materially affected the financial position or performance of the entity during that period
By order of the Board
Andy Halford
Group Chief Financial Officer
28 July 2023
Standard Chartered PLC Board of Directors
Chairman Executive Directors Non-Executive Directors
José Viñals Bill Winters Shirish Apte
Andy Halford David Conner
Gay Huey Evans
Jackie Hunt
Robin Lawther
David Tang
Carlson Tong
Phil Rivett
Maria Ramos
Linda Yueh
Page 62
Independent review report to Standard Chartered PLC
Conclusion
We have been engaged by Standard Chartered PLC (the 'Company' or the 'Group')) to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2023 which comprises the condensed consolidated interim income statement, the condensed consolidated interim statement of comprehensive income, the condensed consolidated interim balance sheet, the condensed consolidated interim statement of changes in equity, the condensed consolidated interim cash flow statement, the related notes 1 to 31, and the risk and capital disclosures marked as 'reviewed' from page 51 to 112 (together the 'condensed consolidated interim financial statements'). We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial statements in the half-yearly financial report for the six months ended 30 June 2023 are not prepared, in all material respects, in accordance with United Kingdom (UK) adopted International Accounting Standard 34 (IAS 34), IAS 34 as adopted by the European Union (EU) and the Disclosure Guidance and Transparency Rules (DTR) of the UK's Financial Conduct Authority (FCA).
Basis for Conclusion
We conducted our review in accordance with International Standard on Review Engagements 2410 (UK) 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' (ISRE) issued by the Financial Reporting Council (FRC). A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with UK adopted international accounting standards and international financial reporting standard as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with UK adopted IAS 34 and IAS 34 as adopted by the EU.
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis of Conclusion section of this report, nothing has come to our attention to suggest that management have inappropriately adopted the going concern basis of accounting or that management have identified material uncertainties relating to going concern that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with this ISRE, however future events or conditions may cause the entity to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK's FCA.
In preparing the half-yearly financial report, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report. Our conclusion, including our Conclusions Relating to Going Concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for Conclusion paragraph of this report.
Page 63
Use of our report
This report is made solely to the company in accordance with guidance contained in ISRE 2410 (UK) 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the FRC. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.
Ernst & Young LLP
London
28 July 2023
Page 64
Condensed consolidated interim income statement
For the six months ended 30 June 2023
Notes | 6 months ended 30.06.23$million | 6 months ended 30.06.22$million | |
Interest income | 12,826 | 5,785 | |
Interest expense | (8,842) | (2,147) | |
Net interest income | 3 | 3,984 | 3,638 |
Fees and commission income | 2,079 | 2,023 | |
Fees and commission expense | (434) | (359) | |
Net fee and commission income | 4 | 1,645 | 1,664 |
Net trading income | 5 | 3,233 | 2,679 |
Other operating income | 6 | 265 | 244 |
Operating income | 9,127 | 8,225 | |
Staff costs | (4,158) | (3,853) | |
Premises costs | (208) | (197) | |
General administrative expenses | (741) | (686) | |
Depreciation and amortisation | (561) | ss(592) | |
Operating expenses | 7 | (5,668) | (5,328) |
Operating profit before impairment losses and taxation | 3,459 | 2,897 | |
Credit impairment | 8 | (161) | (263) |
Goodwill, property, plant and equipment and other impairment | 9 | (77) | (15) |
Profit from associates and joint ventures | 19 | 102 | 153 |
Profit before taxation | 3,323 | 2,772 | |
Taxation | 10 | (938) | (684) |
Profit for the period | 2,385 | 2,088 | |
Profit attributable to: | |||
Non-controlling interests | (3) | (1) | |
Parent company shareholders | 2,388 | 2,089 | |
Profit for the period | 2,385 | 2,088 |
cents | cents | ||
Earnings per share: | |||
Basic earnings per ordinary share | 12 | 75.6 | 62.1 |
Diluted earnings per ordinary share | 12 | 73.9 | 61.0 |
The notes form an integral part of these financial statements.
Page 65
Condensed consolidated interim statement of comprehensive income
For the six months ended 30 June 2023
Notes | 6 months ended 30.06.23$million | 6 months ended 30.06.22$million | |
Profit for the period | 2,385 | 2,088 | |
Other comprehensive income/(loss): | |||
Items that will not be reclassified to income statement: | (53) | 135 | |
Own credit gains on financial liabilities designated at fair value through profit or loss | (141) | 138 | |
Equity instruments at fair value through other comprehensive income | 67 | (70) | |
Actuarial gains on retirement benefit obligations | 26 | 35 | 84 |
Taxation relating to components of other comprehensive income | (14) | (17) | |
Items that may be reclassified subsequently to income statement: | (233) | (3,106) | |
Exchange differences on translation of foreign operations: | |||
Net losses taken to equity | (979) | (1,885) | |
Net gains on net investment hedges | 294 | 482 | |
Share of other comprehensive loss from associates and joint ventures | (11) | (82) | |
Debt instruments at fair value through other comprehensive income: | |||
Net valuation gains/(losses) taken to equity | 167 | (1,279) | |
Reclassified to income statement | 84 | (12) | |
Net impact of expected credit losses | (41) | (9) | |
Cash flow hedges: | |||
Net movements in cash flow hedge reserve1 | 271 | (525) | |
Taxation relating to components of other comprehensive income | (18) | 204 | |
Other comprehensive loss for the period, net of taxation | (286) | (2,971) | |
Total comprehensive income/(loss) for the period | 2,099 | (883) | |
Total comprehensive income/(loss) attributable to: | |||
Non-controlling interests | (31) | (32) | |
Parent company shareholders | 2,130 | (851) | |
Total comprehensive income/(loss) for the period | 2,099 | (883) |
1 This line item has been represented in 2022 as a net balance of all movements in the cash flow hedge reserve
Page 66
Condensed consolidated interim balance sheet
As at 30 June 2023
Notes | 30.06.23$million | 31.12.22$million | |
Assets | |||
Cash and balances at central banks | 86,339 | 58,263 | |
Financial assets held at fair value through profit or loss | 13 | 120,845 | 105,812 |
Derivative financial instruments | 13, 14 | 60,388 | 63,717 |
Loans and advances to banks | 13 | 44,602 | 39,519 |
Loans and advances to customers | 13 | 290,137 | 310,647 |
Investment securities | 13 | 162,079 | 172,448 |
Other assets | 18 | 53,951 | 50,383 |
Current tax assets | 423 | 503 | |
Prepayments and accrued income | 3,307 | 3,149 | |
Interests in associates and joint ventures | 19 | 1,734 | 1,631 |
Goodwill and intangible assets | 16 | 5,898 | 5,869 |
Property, plant and equipment | 17 | 2,216 | 5,522 |
Deferred tax assets | 10 | 748 | 834 |
Assets classified as held for sale | 20 | 6,044 | 1,625 |
Total assets | 838,711 | 819,922 | |
Liabilities | |||
Deposits by banks | 13 | 28,560 | 28,789 |
Customer accounts | 13 | 469,567 | 461,677 |
Repurchase agreements and other similar secured borrowing | 13, 15 | 13,320 | 2,108 |
Financial liabilities held at fair value through profit or loss | 13 | 78,783 | 79,903 |
Derivative financial instruments | 13, 14 | 63,023 | 69,862 |
Debt securities in issue | 13 | 63,815 | 61,242 |
Other liabilities | 21 | 50,450 | 43,527 |
Current tax liabilities | 723 | 583 | |
Accruals and deferred income | 6,238 | 5,895 | |
Subordinated liabilities and other borrowed funds | 13, 24 | 11,865 | 13,715 |
Deferred tax liabilities | 10 | 689 | 769 |
Provisions for liabilities and charges | 321 | 383 | |
Retirement benefit obligations | 26 | 126 | 146 |
Liabilities included in disposal groups held for sale | 20 | 1,550 | 1,307 |
Total liabilities | 789,030 | 769,906 | |
Equity | |||
Share capital and share premium account | 25 | 6,883 | 6,930 |
Other reserves | 7,932 | 8,165 | |
Retained earnings | 28,988 | 28,067 | |
Total parent company shareholders' equity | 43,803 | 43,162 | |
Other equity instruments | 25 | 5,512 | 6,504 |
Total equity excluding non-controlling interests | 49,315 | 49,666 | |
Non-controlling interests | 366 | 350 | |
Total equity | 49,681 | 50,016 | |
Total equity and liabilities | 838,711 | 819,922 |
The notes form an integral part of these financial statements.
These financial statements were approved by the Board of directors and authorised for issue on 28 July 2023 and signed on its behalf by:
Andy Halford
Group Chief Financial Officer
Page 67
Condensed consolidated interim statement of changes in equity
For the six months ended 30 June 2023
Ordinary share capital and share premium account$million | Preference share capital and share premium account$million | Capital and merger reserves1$million | Own credit adjustment reserve$million | Fair value through other compre-hensive income reserve - debt$million | Fair value through other compre-hensive income reserve - equity$million | Cash flow hedge reserve$million | Translation reserve$million | Retained earnings$million | Parent company share-holders' equity$million | Other equity instru-ments$million | Non-controlling interests$million | Total$million | |
As at 1 January 2022 | 5,528 | 1,494 | 17,246 | (15) | 103 | 249 | (34) | (5,744) | 27,184 | 46,011 | 6,254 | 371 | 52,636 |
Profit/(loss) for the period | - | - | - | - | - | - | - | - | 2,089 | 2,089 | - | (1) | 2,088 |
Other comprehensive income/(loss) | - | - | - | 115 | (1,261) | (43) | (441) | (1,382) | 722 | (2,940) | - | (31) | (2,971) |
Distributions | - | - | - | - | - | - | - | - | - | - | - | (26) | (26) |
Redemption of other equity instruments | - | - | - | - | - | - | - | - | - | - | (990) | - | (990) |
Treasury shares net movement | - | - | - | - | - | - | - | - | 11 | 11 | - | - | 11 |
Share option expenses | - | - | - | - | - | - | - | - | 104 | 104 | - | - | 104 |
Dividends on ordinary shares | - | - | - | - | - | - | - | - | (274) | (274) | - | - | (274) |
Dividends on preference shares and AT1 securities | - | - | - | - | - | - | - | - | (216) | (216) | - | - | (216) |
Share buy-back3 | (56) | - | 56 | - | - | - | - | - | (754) | (754) | - | - | (754) |
Other movements | - | - | - | - | - | - | - | (12)4 | 35 | 23 | - | 616 | 84 |
As at 30 June 2022 | 5,472 | 1,494 | 17,302 | 100 | (1,158) | 206 | (475) | (7,138) | 28,251 | 44,054 | 5,264 | 374 | 49,692 |
Profit/(loss) for the period | - | - | - | - | - | - | - | - | 859 | 859 | - | (45) | 814 |
Other comprehensive (loss)/income | - | - | - | (163) | 42 | - | (89) | (522) | (64)2 | (796) | - | (11) | (807) |
Distributions | - | - | - | - | - | - | - | - | - | - | - | (5) | (5) |
Other equity instruments issued,net of expenses | - | - | - | - | - | - | - | - | - | - | 1,240 | - | 1,240 |
Redemption of other equity instruments | - | - | - | - | - | - | - | - | - | - | (9)4 | - | (9) |
Treasury shares net movement | - | - | - | - | - | - | - | - | (214) | (214) | - | - | (214) |
Share option expense, net of taxation | - | - | - | - | - | - | - | - | 59 | 59 | - | - | 59 |
Dividends on ordinary shares | - | - | - | - | - | - | - | - | (119) | (119) | - | - | (119) |
Dividends on preference shares and AT1 securities | - | - | - | - | - | - | - | - | (185) | (185) | - | - | (185) |
Share buy-back7 | (36) | - | 36 | - | - | - | - | - | (504) | (504) | - | - | (504) |
Other movements | - | - | - | - | - | - | - | 244 | (16)5 | 8 | 94 | 376 | 54 |
As at 31 December 2022 | 5,436 | 1,494 | 17,338 | (63) | (1,116) | 206 | (564) | (7,636) | 28,067 | 43,162 | 6,504 | 350 | 50,016 |
Profit/(loss) for the period | - | - | - | - | - | - | - | - | 2,388 | 2,388 | - | (3) | 2,385 |
Other comprehensive income/(loss) | - | - | - | (140) | 204 | 50 | 247 | (666) | 472 | (258) | - | (28) | (286) |
Distributions | - | - | - | - | - | - | - | - | - | - | - | (17) | (17) |
Redemption of other equity instruments | - | - | - | - | - | - | - | - | - | - | (1,000) | - | (1,000) |
Treasury shares net movement | - | - | - | - | - | - | - | - | 23 | 23 | - | - | 23 |
Share option expenses | - | - | - | - | - | - | - | - | 90 | 90 | - | - | 90 |
Dividends on ordinary shares | - | - | - | - | - | - | - | - | (401) | (401) | - | - | (401) |
Dividends on preference shares and AT1 securities | - | - | - | - | - | - | - | - | (243) | (243) | - | - | (243) |
Share buy-back8 | (47) | - | 47 | - | - | - | - | - | (1,000) | (1,000) | - | - | (1,000) |
Other movements | - | - | - | - | - | - | - | 254 | 17 | 42 | 84 | 649 | 114 |
As at 30 June 2023 | 5,389 | 1,494 | 17,385 | (203) | (912) | 256 | (317) | (8,277) | 28,988 | 43,803 | 5,512 | 366 | 49,681 |
1 Includes capital reserve of $5 million, capital redemption reserve of $269 million and merger reserve of $17,111 million
2 Comprises actuarial gain, net of taxation on Group defined benefit schemes
3 On 18 February 2022, the Group announced the buy-back programme for a share buy-back of its ordinary shares of $0.50 each. Nominal value of share purchases was $56 million, and the total consideration paid was $754 million (including $4 million of fees and stamp duty), the buy-back completed on 19 May 2022. The total number of shares purchased was 111,295,408, representing 3.61 per cent of the ordinary shares in issue. The nominal value of the shares was transferred from the share capital to the capital redemption reserve account
4 Movement relating to Translation adjustment and AT1 Securities charges
5 Movement mainly related to $21million NCI on Power2SME Pte. Ltd. and $(12)million related to translation adjustment. $8 million in Currency fair relates to share of prior year reserves reported in half year ending Dec 2022
6 Movements related to non-controlling interest from Mox Bank Limited ($29 million), Trust Bank Singapore Ltd ($23 million) and Power2SME Pte. Ltd. ($9million) pertaining to half year ending Jun 2022. Further movement in NCI from Mox Bank Limited ($10 million), Trust Bank Singapore Ltd ($24 million) and Zodia Markets Holdings Ltd ($3 million) during the half year ending Dec 2022
7 On 1 August 2022, the Group announced the buy-back programme for a share buy-back of its ordinary shares of $0.50 each. Nominal value of share purchases was $36 million, and the total consideration paid was $504 million (including $2.5 million of fees). The total number of shares purchased was 73,073,837 representing 2.5 per cent of the ordinary shares in issue. The nominal value of the shares was transferred from the share capital to the capital redemption reserve account
8 On 16 February 2023, the Group announced an additional buy-back programme for a share buy-back of its ordinary shares of $0.50 each. As at H1 2023 the buyback is ongoing, but the Nominal value of share purchases was $47 million, and the total consideration paid was $732 million and a further $268 million relating to irrevocable obligation to buy back shares. The total number of shares purchased was 93,894,706 representing 3.24 per cent of the ordinary shares in issue. The nominal value of the shares was transferred from the share capital to the capital redemption reserve account
9 Movements related to non-controlling interest from Zodia Custody Limited ($27 million), Mox Bank Limited ($17 million), Trust Bank Singapore Ltd ($17 million) and Zodia Market Holdings Limited ($3 million)
Note 25 includes a description of each reserve.
The notes form an integral part of these financial statements.
Page 68
Condensed consolidated interim cash flow statement
For the six months ended 30 June 2023
Notes | 6 months ended 30.06.23$million | 6 months ended 30.06.22$million | |
Cash flows from operating activities: | |||
Profit before taxation | 3,323 | 2,772 | |
Adjustments for non-cash items and other adjustments included within income statement | 31 | 1,518 | 700 |
Change in operating assets | 31 | (2,061) | (24,285) |
Change in operating liabilities | 31 | 26,466 | 26,042 |
Contributions to defined benefit schemes | (19) | (15) | |
UK and overseas taxes paid | (633) | (252) | |
Net cash from operating activities | 28,594 | 4,962 | |
Cash flows from investing activities: | |||
Internally generated Capitalised Software | 16 | (513) | (486) |
Purchase of property, plant and equipment | 17 | (205) | (553) |
Disposal of property, plant and equipment | 17 | 68 | 139 |
Disposal of held for sale property, plant and equipment | 20 | 136 | 79 |
Acquisition of investment associates, and joint ventures, net of cash acquired | 19 | (23) | (4) |
Disposal of investment in subsidiaries, associates and joint ventures, net of cash acquired | 26 | - | |
Dividends received from associates and joint ventures | - | 58 | |
Purchase of investment securities | (140,689) | (145,272) | |
Disposal and maturity of investment securities | 150,779 | 135,373 | |
Net cash from/(used in) investing activities | 9,579 | (10,666) | |
Cash flows from financing activities: | |||
Exercise of share options | - | 11 | |
Treasury Share sale | 23 | - | |
Cancellation of shares including share buy-back | (736) | (754) | |
Premises and equipment lease liability principal payment | (120) | (164) | |
Redemption of Tier 1 Capital | 25 | (1,000) | (990) |
Gross proceeds from issue of subordinated liabilities | 31 | - | 750 |
Interest paid on subordinated liabilities | 31 | (300) | (310) |
Repayment of subordinated liabilities | 31 | (2,000) | (1,048) |
Proceeds from issue of senior debts | 31 | 7,072 | 6,511 |
Repayment of senior debts | 31 | (2,715) | (3,618) |
Interest paid on senior debts | 31 | (561) | (487) |
Net cash inflow from Non-controlling interest | 70 | 82 | |
Dividends paid to non-controlling interests, preference shareholders and AT1 securities | (260) | (242) | |
Dividends paid to ordinary shareholders | (401) | (274) | |
Net cash used in financing activities | (928) | (533) | |
Net increase/(decrease) in cash and cash equivalents | 37,245 | (6,237) | |
Cash and cash equivalents at beginning of the period | 88,719 | 99,605 | |
Effect of exchange rate movements on cash and cash equivalents | (1,452) | (2,553) | |
Cash and cash equivalents at end of the period1 | 124,512 | 90,815 |
1 Comprises cash and balances at central banks $86,339 million (30.06.22: $67,005 million), treasury bills and other eligible bills $9,982 million (30.06.22: $12,826 million), loans and advances to banks $33,431 million (30.06.22: $21,195 million), trading securities $2,656 million (30.06.22: $1,062 million) less restricted balances $7,896 million (30.06.22: $11,273 million)
Interest received was $13,068 million (30.06.22: $6,043 million), interest paid was $7,898 million (30.06.22: $1,878 million).
Page 69
Contents - Notes to the financial statements
Section | Note | |
Basis of preparation | 1 | Accounting policies |
Performance/return | 2 | Segmental information |
3 | Net interest income | |
4 | Net fees and commission | |
5 | Net trading income | |
6 | Other operating income | |
7 | Operating expenses | |
8 | Credit impairment | |
9 | Other impairment | |
10 | Taxation | |
11 | Dividends | |
12 | Earnings per ordinary share | |
Assets and liabilities held at fair value | 13 | Financial instruments |
14 | Derivative financial instruments | |
Financial instruments held at amortised cost | 15 | Reverse repurchase and repurchase agreements including other similar lending and borrowing |
Other assets and investments | 16 | Goodwill and intangible assets |
17 | Property, plant and equipment | |
18 | Other assets | |
19 | Investment in associates and joint ventures | |
20 | Assets held for sale and associated liabilities | |
Funding, accruals, provisions, contingent liabilities and legal proceedings | 21 | Other liabilities |
22 | Contingent liabilities and commitments | |
23 | Legal and regulatory matters | |
Capital instruments, equity and reserves | 24 | Subordinated liabilities and other borrowed funds |
25 | Share capital, other equity instruments and reserves | |
Employee benefits | 26 | Retirement benefit obligations |
Other disclosure matters | 27 | Related party transactions |
28 | Post balance sheet events | |
29 | Corporate governance | |
30 | Statutory accounts | |
31 | Cash flow note |
Page 70
Notes to the financial statements
1. Accounting policies
Statement of compliance
The Group's condensed consolidated interim financial statements consolidate those of Standard Chartered PLC (the Company) and its subsidiaries (together referred to as the Group) and equity account the Group's interest in associates and jointly controlled entities.
These interim financial statements have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority (FCA) and with UK-adopted IAS 34 Interim Financial Reporting and IAS 34 as adopted by the European Union (EU). They should be read in conjunction the 2022 Annual Report, which was prepared in accordance with UK-adopted international accounting standards and International Financial Reporting Standards (IFRS) as adopted by the EU (EU IFRS).
The following parts of the Risk review and Capital review form part of these condensed consolidated interim financial statements:
a) Risk review: Disclosures marked as 'reviewed' from the start of the Credit Risk section to the end of Other principal risks in the same section; and
b) Capital review: Tables marked as 'reviewed' from the start of 'CRD Capital base' to the end of 'Movement in total capital', excluding 'Total risk-weighted assets'.
There were no new standards or amendments to standards that had an effect on these interim condensed financial statements.
Basis of preparation
The consolidated financial statements have been prepared on a going concern basis and under the historical cost convention, as modified by the revaluation of cash-settled share-based payments, assets held for sale, fair value through other comprehensive income, and financial assets and liabilities (including derivatives) at fair value through profit or loss.
The consolidated financial statements are presented in United States dollars ($) and all values are rounded to the nearest million dollars, except when otherwise indicated.
Significant accounting estimates and judgements
In determining the carrying amounts of certain assets and liabilities, the Group makes assumptions of the effects of uncertain future events on those assets and liabilities at the balance sheet date. The Group's estimates and assumptions are based on historical experience and expectation of future events and are reviewed periodically. The significant judgements made by management in applying the Group's accounting policies and key sources of uncertainty were the same as those applied to the consolidated financial statements as at, and for, the year ended 31 December 2022. Summaries of the Group's material accounting policies are included throughout the 2022 Annual Report.
IFRS and Hong Kong accounting requirements
As required by the Hong Kong Listing Rules, an explanation of the differences in accounting practices between UK-adopted IFRS and Hong Kong Financial Reporting Standards is required to be disclosed. There would be no significant differences had these accounts been prepared in accordance with Hong Kong Financial Reporting Standards.
Comparatives
Certain comparatives have been restated in line with current year disclosures. Details of these changes are set out in the relevant sections and notes below:
• Note 2 Segmental information
• Note 12 Earnings per ordinary share
Page 71
Going concern
These financial statements were approved by the Board of directors on 28 July 2023. The directors have made an assessment of the Group's ability to continue as a going concern. This assessment has been made having considered the current macroeconomic and geopolitical headwinds, including:
• Review of the Group Strategy and Corporate Plan
• An assessment of the actual performance to date, loan book quality, credit impairment, legal, regulatory and compliance matters, and the updated annual budget
• Consideration of stress testing performed, including both the Bank of England annual stress test and a Group Recovery and Resolution Plan (RRP) as submitted to the PRA. Both these submissions include the application of stressed scenarios. Under the tests and through the range of scenarios, the results of these exercises and the RRP demonstrate that the Group has sufficient capital and liquidity to continue as a going concern and meet minimum regulatory capital and liquidity requirements
• Analysis of the capital, funding and liquidity position of the Group, including the capital and leverage ratios, and ICAAP which summarises the Group's capital and risk assessment processes, assesses its capital requirements and the adequacy of resources to meet them. Further, funding and liquidity was considered in the context of the risk appetite metrics, including the ADR and LCR ratios
• The Group's Internal Liquidity Adequacy Assessment Process (ILAAP), which considers the Group's liquidity position, its framework and whether sufficient liquidity resources are being maintained to meet liabilities as they fall due, was also reviewed
• The level of debt in issue, including redemptions and issuances during the year, debt falling due for repayment in the next 12 months and further planned debt issuances, including the appetite in the market for the Group's debt
• A detailed review of all principal and emerging risks
Based on the analysis performed, the directors confirm they are satisfied that the Group has adequate resources to continue in business for a period of at least 12 months from 28 July 2023. For this reason, the Group continues to adopt the going concern basis of accounting for preparing the financial statements.
Changes in accounting policies
The Group has changed its accounting policy regarding the determination of its portfolio of Investment Securities held at amortised cost and Debt securities and other eligible bills, other than those included within financial instruments held at fair value through profit or loss. Refer to Note 13 Financial Instruments.
2. Segmental information
Basis of preparation
The analysis reflects how the client segments and geographic regions are managed internally. This is described as the Management View (on an underlying basis) and is principally the location from which a client relationship is managed, which may differ from where it is financially booked and may be shared between businesses and/or regions. In certain instances this approach is not appropriate and a Financial View is disclosed, that is, the location in which the transaction or balance was booked. Typically, the Financial View is used in areas such as the Market and Liquidity Risk reviews where actual booking location is more important for an assessment. Segmental information is therefore on a Management View unless otherwise stated.
Segments and regions
The Group's segmental reporting is in accordance with IFRS 8 Operating Segments and is reported consistently with the internal performance framework and as presented to the Group's Management Team.
Restructuring items excluded from underlying results
The Group's statutory IFRS performance is adjusted for certain items to arrive at alternative performance measures. These items include profits or losses of a capital nature, amounts consequent to investment transactions driven by strategic intent, other infrequent and/or exceptional transactions that are significant or material in the context of the Group's normal business earnings for the period and items which management and investors would ordinarily identify separately when assessing consistent performance period by period. The alternative performance measures are not within the scope of IFRS and not a substitute for IFRS measures. These adjustments are set out below.
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Restructuring gains of $56 million primarily relate to the exits in AME and the aviation finance business. The Group is also reclassifying the movements in the Debit Valuation Adjustment (DVA) into restructuring and other items.
Reconciliations between underlying and statutory results are set out in the tables below:
Profit before taxation (PBT)
6 months ended 30.06.23 | ||||
Underlying$million | Restructuring$million | DVA$million | Statutory$million | |
Operating income | 8,951 | 215 | (39) | 9,127 |
Operating expenses | (5,504) | (164) | - | (5,668) |
Operating profit/(loss) before impairment losses and taxation | 3,447 | 51 | (39) | 3,459 |
Credit impairment | (172) | 11 | - | (161) |
Other impairment | (63) | (14) | - | (77) |
Profit from associates and joint ventures | 94 | 8 | - | 102 |
Profit/(loss) before taxation | 3,306 | 56 | (39) | 3,323 |
6 months ended 30.06.22¹ | ||||
Underlying$million | Restructuring$million | DVA$million | Statutory$million | |
Operating income | 7,859 | 246 | 120 | 8,225 |
Operating expenses | (5,096) | (232) | - | (5,328) |
Operating profit before impairment losses and taxation | 2,763 | 14 | 120 | 2,897 |
Credit impairment | (264) | 1 | - | (263) |
Other impairment | (1) | (14) | - | (15) |
Profit from associates and joint ventures | 153 | - | - | 153 |
Profit before taxation | 2,651 | 1 | 120 | 2,772 |
1 Restructuring, DVA and other items for relevant periods in 2022 has been restated for the removal of (i) exit markets and businesses in AME (ii) Aviation Finance and (iii) DVA from underlying operating performance
Underlying performance by client segment
6 months ended 30.06.23 | |||||
Corporate, Commercial & Institutional Banking$million | Consumer, Private & Business Banking$million | Ventures$million | Central &other items (segment)$million | Total$million | |
Operating income | 5,823 | 3,556 | 89 | (517) | 8,951 |
External | 4,569 | 2,154 | 89 | 2,139 | 8,951 |
Inter-segment | 1,254 | 1,402 | - | (2,656) | - |
Operating expenses | (2,818) | (2,075) | (211) | (400) | (5,504) |
Operating profit/(loss) before impairment losses and taxation | 3,005 | 1,481 | (122) | (917) | 3,447 |
Credit impairment | (69) | (108) | (23) | 28 | (172) |
Other impairment | (21) | - | - | (42) | (63) |
(Loss)/profit from associates and joint ventures | - | - | (13) | 107 | 94 |
Underlying profit/(loss) before taxation | 2,915 | 1,373 | (158) | (824) | 3,306 |
Restructuring | 73 | (16) | (1) | - | 56 |
DVA | (39) | - | - | - | (39) |
Statutory profit/(loss) before taxation | 2,949 | 1,357 | (159) | (824) | 3,323 |
Total assets | 401,001 | 129,660 | 3,076 | 304,974 | 838,711 |
Of which: loans and advances to customers¹ | 174,214 | 127,039 | 947 | 33,623 | 335,823 |
loans and advances to customers | 128,548 | 127,020 | 947 | 33,622 | 290,137 |
loans held at fair value through profit or loss (FVTPL) | 45,666 | 19 | - | 1 | 45,686 |
Total liabilities | 490,697 | 190,690 | 2,317 | 105,326 | 789,030 |
Of which: customer accounts¹ | 333,584 | 185,741 | 2,072 | 8,394 | 529,791 |
1 Loans and advances to customers includes FVTPL and customer accounts includes FVTPL and repurchase agreements
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6 months ended 30.06.22² | |||||
Corporate, Commercial & Institutional Banking$million | Consumer, Private & Business Banking$million | Ventures$million | Central &other items (segment)$million | Total$million | |
Operating income | 4,569 | 2,845 | 5 | 440 | 7,859 |
External | 4,273 | 2,586 | 5 | 995 | 7,859 |
Inter-segment | 296 | 259 | - | (555) | - |
Operating expenses | (2,565) | (2,050) | (146) | (335) | (5,096) |
Operating profit/(loss) before impairment losses and taxation | 2,004 | 795 | (141) | 105 | 2,763 |
Credit impairment | (194) | (80) | (3) | 13 | (264) |
Other impairment | - | (1) | - | - | (1) |
(Loss)/profit from associates and joint ventures | - | - | (7) | 160 | 153 |
Underlying profit/(loss) before taxation | 1,810 | 714 | (151) | 278 | 2,651 |
Restructuring | 30 | (17) | (1) | (11) | 1 |
DVA | 120 | - | - | - | 120 |
Statutory profit/(loss) before taxation | 1,960 | 697 | (152) | 267 | 2,772 |
Total assets | 427,483 | 134,979 | 1,371 | 272,084 | 835,917 |
Of which: loans and advances to customers¹ | 192,439 | 132,275 | 342 | 29,418 | 354,474 |
loans and advances to customers | 134,154 | 132,233 | 342 | 26,779 | 293,508 |
loans held at fair value through profit or loss (FVTPL) | 58,285 | 42 | - | 2,639 | 60,966 |
Total liabilities | 500,400 | 179,637 | 770 | 105,418 | 786,225 |
Of which: customer accounts¹ | 321,517 | 175,747 | 689 | 9,058 | 507,011 |
1 Loans and advances to customers includes FVTPL and customer accounts includes FVTPL and repurchase agreements
2 Underlying performance for relevant periods in 2022 has been restated for the removal of (i) exit markets and businesses in AME (ii) Aviation Finance and (iii) DVA. No change to statutory performance
Operating income by client segment
6 months ended 30.06.23 | |||||
Corporate, Commercial & Institutional Banking$million | Consumer, Private & Business Banking$million | Ventures$million | Central &other items (segment)$million | Total$million | |
Underlying operating income | 5,823 | 3,556 | 89 | (517) | 8,951 |
Restructuring | 187 | 23 | - | 5 | 215 |
DVA | (39) | - | - | - | (39) |
Statutory operating income | 5,971 | 3,579 | 89 | (512) | 9,127 |
6 months ended 30.06.22¹ | |||||
Corporate, Commercial & Institutional Banking$million | Consumer, Private & Business Banking$million | Ventures$million | Central &other items (segment)$million | Total$million | |
Underlying operating income | 4,569 | 2,845 | 5 | 440 | 7,859 |
Restructuring | 213 | 26 | - | 7 | 246 |
DVA | 120 | - | - | - | 120 |
Statutory operating income | 4,902 | 2,871 | 5 | 447 | 8,225 |
1 Underlying performance for relevant periods in 2022 has been restated for the removal of (i) exit markets and businesses in AME (ii) Aviation Finance and (iii) DVA. No change to statutory performance
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Underlying performance by region
6 months ended 30.06.23 | |||||
Asia$million | Africa &Middle East$million | Europe &Americas$million | Central &other items(region)$million | Total$million | |
Operating income | 6,355 | 1,441 | 850 | 305 | 8,951 |
Operating expenses | (3,527) | (796) | (866) | (315) | (5,504) |
Operating profit/(loss) before impairment losses and taxation | 2,828 | 645 | (16) | (10) | 3,447 |
Credit impairment | (182) | 9 | (4) | 5 | (172) |
Other impairment | (2) | (1) | 9 | (69) | (63) |
Profit/(loss) from associates and joint ventures | 105 | - | - | (11) | 94 |
Underlying profit/(loss) before taxation | 2,749 | 653 | (11) | (85) | 3,306 |
Restructuring | (22) | 35 | 19 | 24 | 56 |
DVA | (22) | (3) | (14) | - | (39) |
Statutory profit/(loss) before taxation | 2,705 | 685 | (6) | (61) | 3,323 |
Total assets | 500,118 | 50,716 | 278,561 | 9,316 | 838,711 |
Of which: loans and advances to customers¹ | 255,211 | 22,498 | 58,114 | - | 335,823 |
loans and advances to customers | 240,304 | 20,987 | 28,846 | - | 290,137 |
loans held at fair value through profit or loss (FVTPL) | 14,907 | 1,511 | 29,268 | - | 45,686 |
Total liabilities | 445,833 | 40,487 | 233,442 | 69,268 | 789,030 |
Of which: customer accounts¹ | 353,487 | 30,922 | 145,382 | - | 529,791 |
6 months ended 30.06.22² | |||||
Asia$million | Africa &Middle East$million | Europe &Americas$million | Central &other items(region)$million | Total$million | |
Operating income | 5,339 | 1,202 | 1,375 | (57) | 7,859 |
Operating expenses | (3,318) | (749) | (762) | (267) | (5,096) |
Operating profit/(loss) before impairment losses and taxation | 2,021 | 453 | 613 | (324) | 2,763 |
Credit impairment | (398) | 99 | 31 | 4 | (264) |
Other impairment | (3) | (1) | 2 | 1 | (1) |
Profit/(loss) from associates and joint ventures | 156 | - | - | (3) | 153 |
Underlying profit/(loss) before taxation | 1,776 | 551 | 646 | (322) | 2,651 |
Restructuring | 13 | 19 | (12) | (19) | 1 |
DVA | 43 | 15 | 62 | - | 120 |
Statutory profit/(loss) before taxation | 1,832 | 585 | 696 | (341) | 2,772 |
Total assets | 477,485 | 57,859 | 291,264 | 9,309 | 835,917 |
Of which: loans and advances to customers¹ | 259,484 | 28,003 | 66,987 | - | 354,474 |
loans and advances to customers | 243,169 | 26,656 | 23,683 | - | 293,508 |
loans held at fair value through profit or loss (FVTPL) | 16,315 | 1,347 | 43,304 | - | 60,966 |
Total liabilities | 431,424 | 42,672 | 243,877 | 68,252 | 786,225 |
Of which: customer accounts¹ | 332,705 | 33,480 | 140,826 | - | 507,011 |
1 Loans and advances to customers includes FVTPL and customer accounts includes FVTPL and repurchase agreements
2 Underlying performance for relevant periods in 2022 has been restated for the removal of (i) exit markets and businesses in AME (ii) Aviation Finance and (iii) DVA. No change to statutory performance
Page 75
Operating income by region
6 months ended 30.06.23 | |||||
Asia$million | Africa & Middle East$million | Europe &Americas$million | Central &other items(region)$million | Total$million | |
Underlying operating income | 6,355 | 1,441 | 850 | 305 | 8,951 |
Restructuring | 117 | 74 | 25 | (1) | 215 |
DVA | (22) | (3) | (14) | - | (39) |
Statutory operating income | 6,450 | 1,512 | 861 | 304 | 9,127 |
6 months ended 30.06.22¹ | |||||
Asia$million | Africa & Middle East$million | Europe &Americas$million | Central &other items(region)$million | Total$million | |
Underlying operating income | 5,339 | 1,202 | 1,375 | (57) | 7,859 |
Restructuring | 150 | 75 | 7 | 14 | 246 |
DVA | 43 | 15 | 62 | - | 120 |
Statutory operating income | 5,532 | 1,292 | 1,444 | (43) | 8,225 |
1 Underlying performance for relevant periods in 2022 has been restated for the removal of (i) exit markets and businesses in AME (ii) Aviation Finance and (iii) DVA. No change to statutory performance
Additional segmental information (statutory)
6 months ended 30.06.23 | |||||
Corporate, Commercial & Institutional Banking$million | Consumer, Private & Business Banking$million | Ventures$million | Central &other items (segment)$million | Total$million | |
Net interest income | 2,272 | 2,451 | 31 | (770) | 3,984 |
Net fees and commission income | 861 | 816 | 26 | (58) | 1,645 |
Net trading and other income | 2,838 | 312 | 32 | 316 | 3,498 |
Operating income | 5,971 | 3,579 | 89 | (512) | 9,127 |
6 months ended 30.06.22¹ | |||||
Corporate, Commercial & Institutional Banking$million | Consumer, Private & Business Banking$million | Ventures$million | Central &other items (segment)$million | Total$million | |
Net interest income | 1,579 | 1,735 | 4 | 320 | 3,638 |
Net fees and commission income | 788 | 868 | 3 | 5 | 1,664 |
Net trading and other income | 2,535 | 268 | (2) | 122 | 2,923 |
Operating income | 4,902 | 2,871 | 5 | 447 | 8,225 |
6 months ended 30.06.23 | |||||
Asia$million | Africa &Middle East$million | Europe &Americas$million | Central &other items(region)$million | Total$million | |
Net interest income | 3,141 | 777 | (304) | 370 | 3,984 |
Net fees and commission income | 1,157 | 261 | 272 | (45) | 1,645 |
Net trading and other income | 2,152 | 474 | 893 | (21) | 3,498 |
Operating income | 6,450 | 1,512 | 861 | 304 | 9,127 |
6 months ended 30.06.22 | |||||
Asia$million | Africa &Middle East$million | Europe &Americas$million | Central &other items(region)$million | Total$million | |
Net interest income | 2,668 | 577 | 357 | 36 | 3,638 |
Net fees and commission income | 1,167 | 271 | 301 | (75) | 1,664 |
Net trading and other income | 1,697 | 444 | 786 | (4) | 2,923 |
Operating income | 5,532 | 1,292 | 1,444 | (43) | 8,225 |
Page 76
6 months ended 30.06.23 | ||||||||||
Hong Kong$million | Korea$million | China$million | Taiwan$million | Singapore$million | India$million | Indonesia$million | UAE$million | UK$million | US$million | |
Net interest income | 1,103 | 366 | 271 | 73 | 547 | 331 | 47 | 201 | (506) | 100 |
Net fees and commission income | 322 | 88 | 93 | 94 | 274 | 116 | 23 | 37 | 15 | 213 |
Net trading and other income | 777 | 123 | 228 | 122 | 441 | 174 | 43 | 181 | 664 | 138 |
Operating income | 2,202 | 577 | 592 | 289 | 1,262 | 621 | 113 | 419 | 173 | 451 |
6 months ended 30.06.22 | ||||||||||
Hong Kong$million | Korea$million | China$million | Taiwan$million | Singapore$million | India$million | Indonesia$million | UAE$million | UK$million | US$million | |
Net interest income | 819 | 384 | 273 | 92 | 407 | 315 | 43 | 109 | 122 | 189 |
Net fees and commission income | 307 | 89 | 75 | 86 | 307 | 135 | 29 | 53 | 42 | 198 |
Net trading and other income | 620 | 138 | 251 | 58 | 161 | 227 | 39 | 143 | 609 | 145 |
Operating income | 1,746 | 611 | 599 | 236 | 875 | 677 | 111 | 305 | 773 | 532 |
3. Net interest income
6 months ended 30.06.23$million | 6 months ended 30.06.22$million | |
Balances at central banks | 1,211 | 146 |
Loans and advances to banks | 958 | 326 |
Loans and advances to customers | 7,407 | 3,962 |
Debt securities | 2,344 | 1,080 |
Other eligible bills | 809 | 206 |
Accrued on impaired assets (discount unwind) | 97 | 65 |
Interest income | 12,826 | 5,785 |
Of which: financial instruments held at fair value through other comprehensive income | 1,767 | 833 |
Deposits by banks | 374 | 92 |
Customer accounts | 6,489 | 1,438 |
Debt securities in issue | 1,538 | 347 |
Subordinated liabilities and other borrowed funds | 415 | 247 |
Interest expense on IFRS 16 lease liabilities | 26 | 23 |
Interest expense | 8,842 | 2,147 |
Net interest income | 3,984 | 3,638 |
4. Net fees and commission
6 months ended 30.06.23$million | 6 months ended 30.06.22$million | |
Fees and commissions income | 2,079 | 2,023 |
Of which: | ||
Financial instruments that are not fair valued through profit or loss | 687 | 650 |
Trust and other fiduciary activities | 265 | 284 |
Fees and commissions expense | (434) | (359) |
Of which: | ||
Financial instruments that are not fair valued through profit or loss | (145) | (114) |
Trust and other fiduciary activities | (25) | (24) |
Net fees and commission | 1,645 | 1,664 |
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6 months ended 30.06.23 | |||||
Corporate, Commercial & Institutional Banking$million | Consumer, Private & Business Banking$million | Ventures$million | Central &other items (segment)$million | Total$million | |
Transaction Banking | 574 | 16 | - | - | 590 |
Trade & Working capital | 296 | 12 | - | - | 308 |
Cash Management | 278 | 4 | - | - | 282 |
Financial Markets | 442 | - | - | - | 442 |
Lending & Portfolio Management | 65 | 3 | - | - | 68 |
Wealth Management | - | 644 | - | - | 644 |
Retail Products | - | 298 | 14 | - | 312 |
Treasury | - | - | - | (6) | (6) |
Others | - | 1 | 24 | 4 | 29 |
Fees and commission income | 1,081 | 962 | 38 | (2) | 2,079 |
Fees and commission expense | (220) | (146) | (12) | (56) | (434) |
Net fees and commission | 861 | 816 | 26 | (58) | 1,645 |
6 months ended 30.06.22 | |||||
Corporate, Commercial & Institutional Banking$million | Consumer, Private & Business Banking$million | Ventures$million | Central &other items (segment)$million | Total$million | |
Transaction Banking | 525 | 17 | - | - | 542 |
Trade & Working capital | 320 | 13 | - | - | 333 |
Cash Management | 205 | 4 | - | - | 209 |
Financial Markets | 434 | - | - | - | 434 |
Lending & Portfolio Management | 53 | 3 | - | - | 56 |
Wealth Management | - | 666 | - | - | 666 |
Retail Products | - | 293 | 4 | - | 297 |
Treasury | - | - | - | (4) | (4) |
Others | - | 16 | 4 | 12 | 32 |
Fees and commission income | 1,012 | 995 | 8 | 8 | 2,023 |
Fees and commission expense | (224) | (127) | (5) | (3) | (359) |
Net fees and commission | 788 | 868 | 3 | 5 | 1,664 |
Up front bancassurance consideration amounts are amortised on a straight-line basis over the contractual period to which the consideration relates. Deferred income on the balance sheet in respect of these activities is $507 million (30 June 2022: $592 million). The income will be earned evenly over the next 6 years (30 June 2022: 7 years). For the six months ended 30 June 2023, $42 million of fee income was released from deferred income (30 June 2022: $42 million)
For the bancassurance contract with the annual performance bonus, based on progress so far and expectation of meeting the performance targets by year-end with a high probability, a pro-rata portion of the total performance fee, equal to $107 million of the fee has been recognised as fee income in the period.
5. Net trading income
6 months ended 30.06.23$million | 6 months ended 30.06.22$million | |
Net trading income | 3,233 | 2,679 |
Significant items within net trading income include: | ||
Gains on instruments held for trading1 | 2,876 | 2,480 |
Gains on financial assets mandatorily at fair value through profit or loss | 1,914 | 157 |
Gains/(losses) on financial assets designated at fair value through profit or loss | 4 | (6) |
(Losses)/gains on financial liabilities designated at fair value through profit or loss | (1,642) | 178 |
1 Includes $29 million loss (30 June 2022: $666 million gain) from the translation of foreign currency monetary assets and liabilities
Page 78
6. Other operating income
6 months ended 30.06.23$million | 6 months ended 30.06.22$million | |
Other operating income includes: | ||
Rental income from operating lease assets | 246 | 203 |
Net (loss)/gain on disposal of fair value through other comprehensive income debt instruments | (85) | 12 |
Net (loss)/gain on amortized cost financial assets | (20) | 2 |
Net gain/(loss) on sale of businesses | 28 | (1) |
Dividend income | 10 | 6 |
Gain on sale of aircrafts | - | 6 |
Other | 86 | 16 |
Other operating income | 265 | 244 |
7. Operating expenses
6 months ended 30.06.23$million | 6 months ended 30.06.22$million | |
Staff costs: | ||
Wages and salaries | 3,204 | 2,963 |
Social security costs | 123 | 115 |
Other pension costs | 214 | 195 |
Share-based payment costs | 112 | 122 |
Other staff costs | 505 | 458 |
4,158 | 3,853 |
Other staff costs include redundancy expenses of $25 million (30 June 2022: $24 million). Further costs in this category include training, travel costs and other staff-related costs.
6 months ended 30.06.23$million | 6 months ended 30.06.22$million | |
Premises and equipment expenses | 208 | 197 |
General administrative expenses | 741 | 686 |
Depreciation and amortisation: | ||
Property, plant and equipment: | ||
Premises | 158 | 161 |
Equipment | 54 | 64 |
Operating lease assets | 27 | 105 |
Intangibles: | ||
Software | 322 | 260 |
Acquired on business combinations | - | 2 |
561 | 592 | |
Total operating expenses | 5,668 | 5,328 |
Operating expenses include research expenditure of $472 million (30 June 2022: $408 million), which was recognized as an expense in the period.
8. Credit impairment
6 months ended 30.06.23$million | 6 months ended 30.06.22$million | |
Net credit impairment on loans and advances to banks and customers | 225 | 278 |
Net credit impairment on debt securities | (37) | (1) |
Net credit impairment relating to financial guarantees and loan commitments | (37) | (14) |
Net credit impairment relating to other financial assets | 10 | - |
Credit impairment1 | 161 | 263 |
1 No material purchased or originated credit-impaired (POCI) assets
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9. Other impairment
6 months ended 30.06.23$million | 6 months ended 30.06.22$million | |
Impairment of property, plant and equipment (Note 17) | 2 | (1) |
Impairment of other intangible assets (Note 16) | 67 | 1 |
Other | 8 | 15 |
Other impairment | 77 | 15 |
10. Taxation
The following table provides analysis of taxation charge in the year:
6 months ended 30.06.23$million | 6 months ended 30.06.22$million | |
The charge for taxation based upon the profit for the period comprises: | ||
Current tax: | ||
United Kingdom corporation tax at 23.5 per cent (2022: 19 per cent): | ||
Current tax charge on income for the period | 2 | - |
Adjustments in respect of prior periods (including double tax relief) | - | - |
Foreign tax: | ||
Current tax charge on income for the period | 892 | 578 |
Adjustments in respect of prior periods | (3) | (6) |
891 | 572 | |
Deferred tax: | ||
Origination/reversal of temporary differences | 33 | 113 |
Adjustments in respect of prior periods | 14 | (1) |
47 | 112 | |
Tax on profits on ordinary activities | 938 | 684 |
Effective tax rate | 28.2% | 24.7% |
The tax charge for the period has been calculated by applying the effective rate of tax which is expected to apply for the year ending 31 December 2023 using rates substantively enacted at 30 June 2023. The rate has been calculated by estimating and applying an average annual effective income tax rate to each tax jurisdiction individually.
The tax charge for the period of $938 million (30 June 2022: $684 million) on a profit before tax of $3,323 million (30 June 2022: $2,772 million) reflects the impact of non-deductible expenses, non-creditable withholding taxes offset by countries with tax rates lower than the UK, the most significant of which is Singapore.
Foreign tax includes current tax of $98 million (30 June 2022: $4 million) on the profits assessable in Hong Kong. Deferred tax includes origination or reversal of temporary differences of $29 million (30 June 2022: $36 million) provided at a rate of 16.5 per cent (30 June 2022: 16.5 per cent) on the profits assessable in Hong Kong.
Legislation in respect of Pillar Two income taxes was substantively enacted in the UK on 20 June 2023 to apply for periods commencing 1 January 2024. The group is in the process of undertaking an impact assessment. The IAS 12 exception to recognise and disclose information about deferred tax assets and liabilities related to Pillar Two income taxes has been applied.
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Deferred tax comprises assets and liabilities as follows:
30.06.23 | 31.12.22 | |||||
Total$million | Asset$million | Liability$million | Total$million | Asset$million | Liability$million | |
Deferred tax comprises: | ||||||
Accelerated tax depreciation | (402) | - | (402) | (589) | 1 | (590) |
Impairment provisions on loans and advances | 343 | 361 | (18) | 334 | 339 | (5) |
Tax losses carried forward | 148 | 125 | 23 | 212 | 90 | 122 |
Equity instruments at fair value through other comprehensive income | (86) | (1) | (85) | (74) | - | (74) |
Debt instruments at fair value through other comprehensive income | 53 | 40 | 13 | 61 | 45 | 16 |
Cash flow hedges | 67 | 75 | (8) | 89 | 85 | 4 |
Own credit adjustment | 6 | (1) | 7 | 5 | (1) | 6 |
Retirement benefit obligations | (19) | 9 | (28) | 2 | 15 | (13) |
Share-based payments | 38 | 7 | 31 | 36 | 5 | 31 |
Other temporary differences | (89) | 133 | (222) | (11) | 255 | (266) |
59 | 748 | (689) | 65 | 834 | (769) | |
11. Dividends
Ordinary equity shares
6 months ended 30.06.23 | 6 months ended 31.12.22 | 6 months ended 30.06.22 | ||||
Cents per share | $million | Cents per share | $million | Cents per share | $million | |
2022/2021 final dividend declared and paid during the period | 14 | 401 | - | - | 9 | 274 |
2022 interim dividend declared and paid during the year | - | - | 4 | 119 | - | - |
The 2022 final dividend per share of 14 cents per ordinary share ($401 million) was paid to eligible shareholders on 11 May 2023, and is recognised in these interim accounts.
Interim dividends on ordinary equity shares are recorded in the period in which they are declared and, in respect of the final dividend, have been approved by the shareholders.
2023 recommended interim dividend
The 2023 interim dividend of 6 cents per ordinary share will be paid in pounds sterling, Hong Kong dollars or US dollars on 13 October 2023 to shareholders on the UK register of members at the close of business in the UK on 11 August 2023.
Preference shares and Additional Tier 1 securities
Dividends on these preference shares and securities classified as equity are recorded in the period in which they are declared.
6 months ended 30.06.23$million | 6 months ended 31.12.22$million | 6 months ended 30.06.22$million | ||
Non-cumulative redeemable preference shares: | 7.014 per cent preference shares of $5 each | 26 | 27 | 26 |
6.409 per cent preference shares of $5 each | 23 | 14 | 6 | |
49 | 41 | 32 | ||
Additional Tier 1 securities: fixed rate resetting perpetual subordinated contingent convertible securities | 194 | 144 | 184 | |
243 | 185 | 216 | ||
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12. Earnings per ordinary share
6 months ended 30.06.23$million | 6 months ended 30.06.22 ¹$million | |
Profit for the period attributable to equity holders | 2,385 | 2,088 |
Non-controlling interest | 3 | 1 |
Dividend payable on preference shares and AT1 classified as equity | (243) | (216) |
Profit for the period attributable to ordinary shareholders | 2,145 | 1,873 |
Items normalised: | ||
Restructuring¹ | (56) | (1) |
DVA | 39 | (120) |
Tax on normalised items | - | 14 |
Underlying profit¹ | 2,128 | 1,766 |
Basic - Weighted average number of shares (millions) | 2,839 | 3,014 |
Diluted - Weighted average number of shares (millions) | 2,902 | 3,069 |
Basic earnings per ordinary share (cents) | 75.6 | 62.1 |
Diluted earnings per ordinary share (cents) | 73.9 | 61.0 |
Underlying basic earnings per ordinary share (cents)¹ | 75.0 | 58.6 |
Underlying diluted earnings per ordinary share (cents)¹ | 73.3 | 57.5 |
1 Underlying performance for relevant periods in 2022 has been restated for the removal of (i) exit markets and businesses in AME (ii) Aviation Finance and (iii) DVA. No change to statutory performance
13. Financial instruments
Classification and measurement
Assets | Notes | Assets at fair value | Assetsheld at amortised cost$million | Total$million | |||||
Trading$million | Derivatives held for hedging$million | Non-trading mandatorily at fair value through profitor loss$million | Designated at fair value through profit or loss$million | Fair value throughother compre-hensiveincome$million | Totalfinancialassets atfair value$million | ||||
Cash and balances at central banks | - | - | - | - | - | - | 86,339 | 86,339 | |
Financial assets held at fair value through profit or loss | |||||||||
Loans and advances to banks¹ | 2,126 | - | - | - | - | 2,126 | - | 2,126 | |
Loans and advances to customers¹ | 5,106 | - | 262 | - | - | 5,368 | - | 5,368 | |
Reverse repurchase agreements and other similar secured lending | 15 | 5,276 | - | 69,509 | - | - | 74,785 | - | 74,785 |
Debt securities, alternative tier one and other eligible bills | 35,488 | - | 117 | 75 | - | 35,680 | - | 35,680 | |
Equity shares | 2,650 | - | 229 | - | - | 2,879 | - | 2,879 | |
Other assets | 18 | - | - | 7 | - | - | 7 | - | 7 |
50,646 | - | 70,124 | 75 | - | 120,845 | - | 120,845 | ||
Derivative financial instruments | 14 | 57,366 | 3,022 | - | - | - | 60,388 | - | 60,388 |
Loans and advances to banks¹ | - | - | - | - | - | - | 44,602 | 44,602 | |
of which - reverse repurchase agreements and other similar secured lending | 15 | - | - | - | - | - | - | 1,383 | 1,383 |
Loans and advances to customers¹ | - | - | - | - | - | - | 290,137 | 290,137 | |
of which - reverse repurchase agreements and other similar secured lending | 15 | - | - | - | - | - | - | 10,950 | 10,950 |
Investment securities | |||||||||
Debt securities, alternative tier one and other eligible bills | - | - | - | - | 102,866 | 102,866 | 58,388 | 161,254 | |
Equity shares | - | - | - | - | 825 | 825 | - | 825 | |
- | - | - | - | 103,691 | 103,691 | 58,388 | 162,079 | ||
Other assets | 18 | - | - | - | - | - | - | 45,367 | 45,367 |
Assets held for sale | 20 | - | - | - | 39 | - | 39 | 2,444 | 2,483 |
Total at 30 June 2023 | 108,012 | 3,022 | 70,124 | 114 | 103,691 | 284,963 | 527,277 | 812,240 | |
1 Further analysed in Risk review and Capital review
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Assets | Notes | Assets at fair value | Assetsheld at amortised cost$million | Total$million | |||||
Trading$million | Derivatives held for hedging$million | Non-trading mandatorily at fair value through profitor loss$million | Designated at fair value through profit or loss$million | Fair value through other compre-hensive income$million | Totalfinancialassets atfair value$million | ||||
Cash and balances at central banks | - | - | - | - | - | - | 58,263 | 58,263 | |
Financial assets held at fair value through profit or loss | |||||||||
Loans and advances to banks¹ | 976 | - | - | - | - | 976 | - | 976 | |
Loans and advances to customers¹ | 5,765 | - | 781 | - | - | 6,546 | - | 6,546 | |
Reverse repurchase agreements and other similar secured lending | 15 | 1,175 | - | 63,316 | - | - | 64,491 | - | 64,491 |
Debt securities, alternative tier one and other eligible bills | 30,162 | - | 324 | 76 | - | 30,562 | - | 30,562 | |
Equity shares | 2,997 | - | 233 | - | - | 3,230 | - | 3,230 | |
Other assets | 18 | - | - | 7 | - | - | 7 | - | 7 |
41,075 | - | 64,661 | 76 | - | 105,812 | - | 105,812 | ||
Derivative financial instruments | 14 | 60,858 | 2,859 | - | - | - | 63,717 | - | 63,717 |
Loans and advances to banks¹ | - | - | - | - | - | - | 39,519 | 39,519 | |
of which - reverse repurchase agreements and other similar secured lending | 15 | - | - | - | - | - | - | 978 | 978 |
Loans and advances to customers¹ | - | - | - | - | - | - | 310,647 | 310,647 | |
of which - reverse repurchase agreements and other similar secured lending | 15 | - | - | - | - | - | - | 24,498 | 24,498 |
Investment securities | |||||||||
Debt securities, alternative tier one and other eligible bills | - | - | - | - | 111,926 | 111,926 | 59,714 | 171,640 | |
Equity shares | - | - | - | - | 808 | 808 | - | 808 | |
- | - | - | - | 112,734 | 112,734 | 59,714 | 172,448 | ||
Other assets | 18 | - | - | - | - | - | - | 39,295 | 39,295 |
Assets held for sale | 20 | - | - | - | 3 | - | 3 | 1,388 | 1,391 |
Total at 31 December 2022 | 101,933 | 2,859 | 64,661 | 79 | 112,734 | 282,266 | 508,826 | 791,092 | |
1 Further analysed in Risk review and Capital review
Liabilities | Notes | Liabilities at fair value | Amortised cost$million | Total$million | |||
Trading$million | Derivatives held for hedging$million | Designated at fair value through profit or loss$million | Total financial liabilities atfair value$million | ||||
Deposits by banks | - | - | - | - | 28,560 | 28,560 | |
Customer accounts | - | - | - | - | 469,567 | 469,567 | |
Financial liabilities held at fair value through profit or loss | |||||||
Deposits by banks | - | - | 1,941 | 1,941 | - | 1,941 | |
Customer accounts | 43 | - | 14,983 | 15,026 | - | 15,026 | |
Repurchase agreements and other similar secured borrowing | 15 | 45 | - | 42,130 | 42,175 | - | 42,175 |
Debt securities in issue | - | - | 10,407 | 10,407 | - | 10,407 | |
Short positions | 9,226 | - | - | 9,226 | - | 9,226 | |
Other liabilities | - | - | 8 | 8 | - | 8 | |
9,314 | - | 69,469 | 78,783 | - | 78,783 | ||
Derivative financial instruments | 14 | 59,371 | 3,652 | - | 63,023 | - | 63,023 |
Repurchase agreements and other similar secured borrowing | 15 | - | - | - | - | 13,320 | 13,320 |
Debt securities in issue | - | - | - | - | 63,815 | 63,815 | |
Other liabilities | 21 | - | - | - | - | 49,958 | 49,958 |
Subordinated liabilities and other borrowed funds | 24 | - | - | - | - | 11,865 | 11,865 |
Liabilities included in disposal groups held for sale | 20 | - | - | - | - | 1,194 | 1,194 |
Total at 30 June 2023 | 68,685 | 3,652 | 69,469 | 141,806 | 638,279 | 780,085 | |
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Liabilities | Notes | Liabilities at fair value | Amortised cost$million | Total$million | |||
Trading$million | Derivatives held for hedging$million | Designated at fair value through profit or loss$million | Total financial liabilities atfair value$million | ||||
Deposits by banks | - | - | - | - | 28,789 | 28,789 | |
Customer accounts | - | - | - | - | 461,677 | 461,677 | |
Financial liabilities held at fair value through profit or loss | |||||||
Deposits by banks | - | - | 1,066 | 1,066 | - | 1,066 | |
Customer accounts | 29 | - | 11,677 | 11,706 | - | 11,706 | |
Repurchase agreements and other similar secured borrowing | 15 | - | - | 51,706 | 51,706 | - | 51,706 |
Debt securities in issue | - | - | 8,572 | 8,572 | - | 8,572 | |
Short positions | 6,847 | - | - | 6,847 | - | 6,847 | |
Other liabilities | - | - | 6 | 6 | - | 6 | |
6,876 | - | 73,027 | 79,903 | - | 79,903 | ||
Derivative financial instruments | 14 | 65,316 | 4,546 | - | 69,862 | - | 69,862 |
Repurchase agreements and other similar secured borrowing | 15 | - | - | - | - | 2,108 | 2,108 |
Debt securities in issue | - | - | - | - | 61,242 | 61,242 | |
Other liabilities | 21 | - | - | - | - | 42,915 | 42,915 |
Subordinated liabilities and other borrowed funds | 24 | - | - | - | - | 13,715 | 13,715 |
Liabilities included in disposal groups held for sale | 20 | 5 | - | - | 5 | 1,230 | 1,235 |
Total at 31 December 2022 | 72,197 | 4,546 | 73,027 | 149,770 | 611,676 | 761,446 | |
Interest rate benchmark reform
During the first six months of 2023, significant progress was made in support of the IBOR transition.
New LIBOR-referencing business had all but ceased, with limited exceptions for derivatives used for risk management of legacy positions, in accordance with regulatory guidance. A full suite of RFR-referencing derivative and cash products are now a standard offering across the Group.
Having completed the remediation of all non-USD LIBOR exposures at the end of 2021 with no reliance on synthetic rates, the Programme focused on remediating legacy USD LIBOR stock. Clients with legacy USD LIBOR loans were engaged to remediate their contracts primarily via active conversion to alternative rates, or other suitable transition mechanisms such as the inclusion of robust fallbacks. For derivatives, the Group adhered to the International Swaps and Derivatives Association (ISDA) 2020 IBOR Fallbacks Protocol for all its trading entities, and continued to engage clients to do the same or to negotiate remediation bilaterally.
The Group made significant progress towards completing its remediation of legacy exposures over the course of the first six months of 2023. Fallbacks in over-the-counter derivative trades subject to the ISDA Protocol were operationalised and rebooked to SOFR plus the relevant credit adjustment spread. The Group also successfully participated in CCP conversion events, including both tranches of the London Clearing House (LCH) conversions for USD LIBOR and also the SGD/THB conversion, as well as the CME Eurodollar futures and the Hong Kong Exchanges and Clearing (HKEX) USD LIBOR events. This has significantly reduced our overall notional exposure to USD LIBOR, as centrally cleared derivatives and bilateral derivatives with fallbacks represented a substantial portion of the Group's overall USD LIBOR notional exposure.
As at 30 June 2023, our remediation rate measured by the number of in-scope individual client entities stood at 93%, and when measured by outstanding affected notional the remediation rate was in excess of 97%. A small minority of outstanding contracts are likely to temporarily transition to synthetic USD LIBOR while remediation efforts continue. The majority of those contracts are either syndicated loans, where a large number of participants involved presents additional challenges to the transition, or derivatives hedging loans or bonds where there is a dependency on remediation of the underlying cash products.
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Risks which the Group is exposed to due to IBOR transition
The Group has largely mitigated all material adverse outcomes associated with the cessation of IBOR benchmarks, and these have not required a change to the Group's risk management strategy. However, the Group will continue to focus on the remediation required for other benchmarks, and monitor and manage the inherent risks of the transition, with particular attention being paid to the following:
• Legal Risk: IBOR transition introduces significant legal risks and the Group has taken action to mitigate them where possible. Steps have been taken to either insert robust fallbacks or actively convert transactions from the relevant IBOR to the new RFR-based options. The Group actively monitors remediation progress and tracks exposures that are proving difficult to remediate, and where there is a risk they may remain outstanding after the expected end of synthetic LIBOR at the end of September 2024
• Conduct Risk: The Group considers Conduct Risk to be a significant area of non-financial risk management throughout the transition. Our risk appetite statement on Conduct Risk strives to maintain appropriate outcomes by continuously demonstrating that we are 'Doing the Right Thing' in the way we do business. Accordingly, we recognise that the identification and mitigation of conduct risks arising in respect of the transition are fundamental to the successful transition to new RFR-based rates. The Group has therefore taken actions in this regard as an integral part of its IBOR Transition Programme, including an extensive outreach programme
• Operational Risk: The Group has recognised the importance of the ongoing identification and management of Operational Risk resulting from the IBOR transition, including those related to systems affected by the transition. The Programme has adopted the Group's existing Operational Risk Framework in its approach to identifying, quantifying, and mitigating the impact of operational risks resulting from the transition
• Market Risk: As trades are transitioned from IBOR to RFRs, the business-as-usual metrics, limit structure and controls will continue to apply. Limits for value at risk and market risk sensitivities are in accordance with the Group Risk Appetite Statement. New limits have been set following engagement with the business to consider client demand and market liquidity in RFR-linked products, as well as the regulatory expectations. It should be noted that no legacy LIBOR exposures were transitioned to credit sensitive rates, nor does the Group plan on making this available in its future product offering
• Financial and pricing risk: The Group continues to monitor any financial impact of IBOR transition across business and functional workstreams in the Programme, and has implemented model and pricing changes to mitigate these risks and ensure alignment with conventions and pricing mechanisms of the alternative reference rates and indices
• Accounting Risk: The Group has identified the financial instruments that may be affected by accounting issues such as accounting for contractual changes due to IBOR reform, fair value measurement and hedge accounting. We continue to monitor as remediation for residual contracts is completed.
As at 30 June 2023 the Group had the following notional principal exposures to interest rate benchmarks that are expected to be subject to interest rate benchmark reform.
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IBOR exposures by benchmark as of 30 June 2023 | USD LIBOR$million | GBP LIBOR$million | SGD SOR$million | THB FIX$million | Other IBOR$million | Total IBOR$million |
Assets1 | ||||||
Loans and advances to banks | 90 | - | - | - | - | 90 |
Loans and advances to customers | 15,676 | - | 6 | - | - | 15,682 |
Debt securities, AT1 and other eligible bills | 2,025 | - | 14 | - | - | 2,039 |
17,791 | - | 20 | - | - | 17,811 | |
Liabilities1 | ||||||
Deposits by banks | 322 | - | - | - | - | 322 |
Customer accounts | 396 | - | - | 32 | - | 428 |
Repurchase agreements and other secured borrowing | - | - | - | - | - | - |
Debt securities in issue | 1,001 | - | - | - | - | 1,001 |
Subordinated liabilities and other borrowed funds | - | - | - | - | - | - |
1,719 | - | - | 32 | - | 1,751 | |
Derivatives - Foreign exchange contracts | ||||||
Currency swaps and options | 413 | - | - | - | - | 413 |
Derivatives - Interest rate contracts | ||||||
Swaps | 5,340 | - | - | - | - | 5,340 |
Forward rate agreements and options | - | - | - | - | - | - |
Exchange traded futures and options | - | - | - | - | - | - |
Equity and stock index options | - | - | - | - | - | - |
Credit derivative contracts | - | - | - | - | - | - |
Total IBOR derivative exposure | 5,753 | - | - | - | - | 5,753 |
Total IBOR exposure | 25,263 | - | 20 | 32 | - | 25,315 |
Loan commitments off balance sheet | 1,050 | - | - | - | - | 1,050 |
1 The Assets/Liabilities amounts include contracts with a carrying value of $11.1 billion where remediation terms have been agreed, but the Group is either awaiting signed confirmation or pending update of internal systems
IBOR exposures by benchmark as at31 December 2022 | USD LIBOR$million | GBP LIBOR$million | SGD SOR$million | THB FIX$million | Other IBOR$million | Total IBOR$million |
Assets | ||||||
Loans and advances to banks | 145 | - | - | - | - | 145 |
Loans and advances to customers | 21,395 | - | 420 | - | - | 21,815 |
Debt securities, AT1 and other eligible bills | 2,843 | - | 15 | - | - | 2,858 |
24,383 | - | 435 | - | - | 24,818 | |
Liabilities | ||||||
Deposits by banks | 332 | - | - | - | - | 332 |
Customer accounts | 3,066 | - | - | 34 | - | 3,100 |
Repurchase agreements and other secured borrowing | 671 | - | - | - | - | 671 |
Debt securities in issue | 1,211 | - | - | - | - | 1,211 |
Subordinated liabilities and other borrowed funds | - | - | - | - | - | - |
5,280 | - | - | 34 | - | 5,314 | |
Derivatives - Foreign exchange contracts | ||||||
Currency swaps and options | 135,145 | - | 2,273 | 959 | - | 138,377 |
Derivatives - Interest rate contracts | ||||||
Swaps | 671,534 | - | 7,512 | 10,998 | - | 690,044 |
Forward rate agreements and options | 22,067 | - | - | 9 | - | 22,076 |
Exchange traded futures and options | 31,922 | - | - | - | - | 31,922 |
Equity and stock index options | 49 | - | - | - | - | 49 |
Credit derivative contracts | 3,974 | - | 46 | 129 | - | 4,149 |
Total IBOR derivative exposure | 864,691 | - | 9,831 | 12,095 | - | 886,617 |
Total IBOR exposure | 894,354 | - | 10,266 | 12,129 | - | 916,749 |
Loan commitments off balance sheet | 2,798 | - | 14 | - | - | 2,812 |
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Financial liabilities designated at fair value through profit or loss
30.06.23$million | 31.12.22$million | |
Carrying balance aggregate fair value | 69,469 | 73,027 |
Amount contractually obliged to repay at maturity | 70,986 | 74,138 |
Difference between aggregate fair value and contractually obliged to repay at maturity | (1,517) | (1,111) |
Cumulative change in fair value accredited to credit risk difference | (201) | (56) |
The net fair value loss on financial liabilities designated at fair value through profit or loss was $ 1,642 million for the half year ended 30 June 2023 (31 December 2022: net loss of $677 million). Further details of the Group's own credit adjustment (OCA) valuation technique is described later in this Note.
Valuation of financial instruments
The fair values of quoted financial assets and liabilities in active markets are based on current prices. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. Wherever possible, fair values have been calculated using unadjusted quoted market prices in active markets for identical instruments held by the Group. Where quoted market prices are not available, or are unreliable because of poor liquidity, fair values have been determined using valuation techniques which, to the extent possible, use market observable inputs, but in some cases use non market observable inputs. Valuation techniques used include discounted cash flow analysis and pricing models and, where appropriate, comparison with instruments that have characteristics similar to those of the instruments held by the Group.
The Valuation Methodology function is responsible for independent price verification, oversight of fair value and appropriate value adjustments and escalation of valuation issues. Independent price verification is the process of determining that the valuations incorporated into the financial statements are validated independent of the business area responsible for the product. The Valuation Methodology function has oversight of the fair value adjustments to ensure the financial instruments are priced to exit. These are key controls in ensuring the material accuracy of the valuations incorporated in the financial statements. The market data used for price verification (PV) may include data sourced from recent trade data involving external counterparties or third parties such as Bloomberg, Reuters, brokers and consensus pricing providers. The Valuation Methodology function perform an ongoing review of the market data sources that are used as part of the PV and fair value processes which are formally documented on a semi-annual basis detailing the suitability of the market data used for price testing. Price verification uses independently sourced data that is deemed most representative of the market the instruments trade in. To determine the quality of the market data inputs, factors such as independence, relevance, reliability, availability of multiple data sources and methodology employed by the pricing provider are taken into consideration.
The Valuation and Benchmarks Committee (VBC) is the valuation governance forum consisting of representatives from Group Market Risk, Product Control, Valuation Methodology and the business, which meets monthly to discuss and approve the independent valuations of the inventory. For Principal Finance, the Investment Committee meeting is held on a quarterly basis to review investments and valuations.
Significant accounting estimates and judgements
The Group evaluates the significance of financial instruments and material accuracy of the valuations incorporated in the financial statements as they involve a high degree of judgement and estimation uncertainty in determining the carrying values of financial assets and liabilities at the balance sheet date.
• Fair value of financial instruments is determined using valuation techniques and estimates (see below) which, to the extent possible, use market observable inputs, but in some cases use non-market observable inputs. Changes in the observability of significant valuation inputs can materially affect the fair values of financial instruments
• When establishing the exit price of a financial instrument using a valuation technique, the Group estimates valuation adjustments in determining the fair value
• In determining the valuation of financial instruments, the Group makes judgements on the amounts reserved to cater for model and valuation risks, which cover both Level 2 and Level 3 assets, and the significant valuation judgements in respect of Level 3 instruments
• Where the estimated measurement of fair value is more judgemental in respect of Level 3 assets, these are valued based on models that use a significant degree of non-market-based unobservable inputs
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Valuation techniques
Refer to the fair value hierarchy explanation - Level 1, 2 and 3
• Financial instruments held at fair value
- Debt securities - asset-backed securities: Asset-backed securities are valued based on external prices obtained from consensus pricing providers, broker quotes, recent trades, arrangers' quotes, etc. Where an observable price is available for a given security, it is classified as Level 2. In instances where third-party prices are not available or reliable, the security is classified as Level 3. The fair value of Level 3 securities is estimated using market standard cash flow models with input parameter assumptions which include prepayment speeds, default rates, discount margins derived from comparable securities with similar vintage, collateral type, and credit ratings
- Debt securities in issue: These debt securities relate to structured notes issued by the Group. Where independent market data is available through pricing vendors and broker sources these positions are classified as Level 2. Where such liquid external prices are not available, valuations of these debt securities are implied using input parameters such as bond spreads and credit spreads, and are classified as Level 3. These input parameters are determined with reference to the same issuer (if available) or proxies from comparable issuers or assets
- Derivatives: Derivative products are classified as Level 2 if the valuation of the product is based upon input parameters which are observable from independent and reliable market data sources. Derivative products are classified as Level 3 if there are significant valuation input parameters which are unobservable in the market, such as products where the performance is linked to more than one underlying variable. Examples are commodity crack swaption and equity options based on the performance of two or more underlying indices. In most cases these unobservable correlation parameters cannot be implied from the market, and methods such as historical analysis and comparison with historical levels or other benchmark data must be employed
- Equity shares - private equity: The majority of private equity unlisted investments are valued based on earning multiples - Price-to-Earnings (P/E) or enterprise value to earnings before income tax, depreciation and amortisation (EV/EBITDA) ratios - of comparable listed companies. The two primary inputs for the valuation of these investments are the actual or forecast earnings of the investee companies and earning multiples for the comparable listed companies. To ensure comparability between these unquoted investments and the comparable listed companies, appropriate adjustments are also applied (for example, liquidity and size) in the valuation. In circumstances where an investment does not have direct comparables or where the multiples for the comparable companies cannot be sourced from reliable external sources, alternative valuation techniques (for example, discounted cash flow model or net asset value ("NAV") or option pricing model), which use predominantly unobservable inputs or Level 3 inputs, may be applied. Even though earning multiples for the comparable listed companies can be sourced from third-party sources (for example, Bloomberg), and those inputs can be deemed Level 2 inputs, all unlisted investments (excluding those where observable inputs are available, for example, over-the-counter (OTC) prices) are classified as Level 3 on the basis that the valuation methods involve judgements ranging from determining comparable companies to discount rates where the discounted cash flow method is applied
- Loans and advances: These primarily include loans in the FM Bond and Loan Syndication business which were not fully syndicated as of the balance sheet date and other financing transactions within Financial Markets, and loans and advances including reverse repurchase agreements that do not have SPPI cashflows or are managed on a fair value basis. These loans are generally bilateral in nature and, where available, their valuation is based on observable clean sales transactions prices or market observable spreads. If observable credit spreads are not available, proxy spreads based on comparables with similar credit grade, sector and region, are used. Where observable transaction prices, credit spreads and market standard proxy methods are available, these loans are classified as Level 2. Where there are no recent transactions or comparables, these loans are classified as Level 3
- Other debt securities: These debt securities include convertible bonds, corporate bonds, credit and structured notes. Where quoted prices are available through pricing vendors, brokers or observable trading activities from liquid markets, these are classified as Level 2 and valued using such quotes. Where there are significant valuation inputs which are unobservable in the market, due to illiquid trading or the complexity of the product, these are classified as Level 3. The valuations of these debt securities are implied using input parameters such as bond spreads and credit spreads. These input parameters are determined with reference to the same issuer (if available) or proxied from comparable issuers or assets
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• Financial instruments held at amortised cost
The following sets out the Group's basis for establishing fair values of amortised cost financial instruments and their classification between Levels 1, 2 and 3. As certain categories of financial instruments are not actively traded, there is a significant level of management judgement involved in calculating the fair values:
• Cash and balances at central banks: The fair value of cash and balances at central banks is their carrying amounts
• Debt securities in issue, subordinated liabilities and other borrowed funds: The aggregate fair values are calculated based on quoted market prices. For those notes where quoted market prices are not available, a discounted cash flow model is used based on a current market related yield curve appropriate for the remaining term to maturity
• Deposits and borrowings: The estimated fair value of deposits with no stated maturity is the amount repayable on demand. The estimated fair value of fixed interest-bearing deposits and other borrowings without quoted market prices is based on discounted cash flows using the prevailing market rates for debts with a similar Credit Risk and remaining maturity
• Investment securities: For investment securities that do not have directly observable market values, the Group utilises a number of valuation techniques to determine fair value. Where available, securities are valued using input proxies from the same or closely related underlying (for example, bond spreads from the same or closely related issuer) or input proxies from a different underlying (for example, a similar bond but using spreads for a particular sector and rating). Certain instruments cannot be proxies as set out above, and in such cases the positions are valued using non-market observable inputs. This includes those instruments held at amortised cost and predominantly relates to asset-backed securities. The fair value for such instruments is usually proxies from internal assessments of the underlying cash flows
• Loans and advances to banks and customers: For loans and advances to banks, the fair value of floating rate placements and overnight deposits is their carrying amounts. The estimated fair value of fixed interest-bearing deposits is based on discounted cash flows using the prevailing money market rates for debts with a similar Credit Risk and remaining maturity. The Group's loans and advances to customers' portfolio is well diversified by geography and industry. Approximately a quarter of the portfolio re-prices within one month, and approximately half re-prices within 12 months. Loans and advances are presented net of provisions for impairment. The fair value of loans and advances to customers with a residual maturity of less than one year generally approximates the carrying value. The estimated fair value of loans and advances with a residual maturity of more than one year represents the discounted amount of future cash flows expected to be received, including assumptions relating to prepayment rates and Credit Risk. Expected cash flows are discounted at current market rates to determine fair value. The Group has a wide range of individual instruments within its loans and advances portfolio and as a result providing quantification of the key assumptions used to value such instruments is impractical
• Other assets: Other assets comprise primarily of cash collateral and trades pending settlement. The carrying amount of these financial instruments is considered to be a reasonable approximation of fair value as they are either short-term in nature or re-price to current market rates frequently
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Fair value adjustments
When establishing the exit price of a financial instrument using a valuation technique, the Group considers adjustments to the modelled price which market participants would make when pricing that instrument. The main valuation adjustments (described further below) in determining fair value for financial assets and financial liabilities are as follows:
01.01.23$million | Movement during the year$million | 30.06.23$million | 01.01.22$million | Movement during the year$million | 31.12.22$million | |
Bid-offer valuation adjustment | 118 | 1 | 119 | 101 | 17 | 118 |
Credit valuation adjustment | 171 | (32) | 139 | 165 | 6 | 171 |
Debit valuation adjustment | (112) | 39 | (73) | (70) | (42) | (112) |
Model valuation adjustment | 3 | - | 3 | 5 | (2) | 3 |
Funding valuation adjustment | 46 | (8) | 38 | - | 46 | 46 |
Other fair value adjustments | 23 | (3) | 20 | 20 | 3 | 23 |
Total | 249 | (3) | 246 | 221 | 28 | 249 |
Income deferrals | ||||||
Day 1 and other deferrals | 186 | (61) | 125 | 147 | 39 | 186 |
Total | 186 | (61) | 125 | 147 | 39 | 186 |
Note: Bracket represents an asset and credit to the income statement
• Bid-offer valuation adjustment: Generally, market parameters are marked on a mid-market basis in the revaluation systems, and a bid-offer valuation adjustment is required to quantify the expected cost of neutralising the business' positions through dealing away in the market, thereby bringing long positions to bid and short positions to offer. The methodology to calculate the bid-offer adjustment for a derivative portfolio involves netting between long and short positions and the grouping of risk by strike and tenor based on the hedging strategy where long positions are marked to bid and short positions marked to offer in the systems
• Credit valuation adjustment (CVA): The Group accounts for CVA against the fair value of derivative products. CVA is an adjustment to the fair value of the transactions to reflect the possibility that our counterparties may default and we may not receive the full market value of the outstanding transactions. It represents an estimate of the adjustment a market participant would include when deriving a purchase price to acquire our exposures. CVA is calculated for each subsidiary, and within each entity for each counterparty to which the entity has exposure and takes account of any collateral we may hold. The Group calculates the CVA by using estimates of future positive exposure, market-implied probability of default (PD) and recovery rates. Where market-implied data is not readily available, we use market-based proxies to estimate the PD. Wrong-way risk occurs when the exposure to a counterparty is adversely correlated with the credit quality of that counterparty, and the Group has implemented a model to capture this impact for key wrong-way exposures. The Group also captures the uncertainties associated with wrong-way risk in the Group's Prudential Valuation Adjustments framework
• Debit valuation adjustment (DVA): The Group calculates DVA adjustments on its derivative liabilities to reflect changes in its own credit standing. The Group's DVA adjustments will increase if its credit standing worsens and conversely, decrease if its credit standing improves. For derivative liabilities, a DVA adjustment is determined by applying the Group's probability of default to the Group's negative expected exposure against the counterparty. The Group's probability of default and loss expected in the event of default is derived based on bond and CDS spreads associated with the Group's issuances and market standard recovery levels. The expected exposure is modelled based on the simulation of the underlying risk factors over the expected life of the deal. This simulation methodology incorporates the collateral posted by the Group and the effects of master netting agreements
• Model valuation adjustment: Valuation models may have pricing deficiencies or limitations that require a valuation adjustment. These pricing deficiencies or limitations arise due to the choice, implementation and calibration of the pricing model
• Funding valuation adjustment (FVA): The Group makes FVA adjustments against derivative products, including embedded derivatives. FVA reflects an estimate of the adjustment to its fair value that a market participant would make to incorporate funding costs or benefits that could arise in relation to the exposure. FVA is calculated by determining the net expected exposure at a counterparty level and then applying a funding rate to those exposures that reflect the market cost of funding. The FVA for uncollateralised (including partially collateralised) derivatives incorporates the estimated present value of the market funding cost or benefit associated with funding these transactions
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• Other fair value adjustments: The Group calculates the fair value on the interest rate callable products by calibrating to a set of market prices with differing maturity, expiry and strike of the trades
• Day one and other deferrals: In certain circumstances the initial fair value is based on a valuation technique which differs to the transaction price at the time of initial recognition. However, these gains can only be recognised when the valuation technique used is based primarily on observable market data. In those cases where the initially recognised fair value is based on a valuation model that uses inputs which are not observable in the market, the difference between the transaction price and the valuation model is not recognised immediately in the income statement. The difference is amortised to the income statement until the inputs become observable, or the transaction matures or is terminated. Other deferrals primarily represent adjustments taken to reflect the specific terms and conditions of certain derivative contracts which affect the termination value at the measurement date
In addition, the Group calculates own credit adjustment (OCA) on its issued debt designated at fair value, including structured notes, in order to reflect changes in its own credit standing. Issued debt is discounted utilising the spread at which similar instruments would be issued or bought back at the measurement date as this reflects the value from the perspective of a market participant who holds the identical item as an asset. OCA measures the difference between the fair value of issued debt as of reporting date and theoretical fair values of issued debt adjusted up or down for changes in own credit spreads from inception date to the measurement date. Under IFRS 9 the change in the OCA component is reported under other comprehensive income. The Group's OCA reserve will increase if its credit standing worsens in comparison to the inception of the trade and, conversely, decrease if its credit standing improves. The Group's OCA reserve will reverse over time as its liabilities mature.
Fair value hierarchy - financial instruments held at fair value
Assets and liabilities carried at fair value or for which fair values are disclosed have been classified into three levels according to the observability of the significant inputs used to determine the fair values. Changes in the observability of significant valuation inputs during the reporting period may result in a transfer of assets and liabilities within the fair value hierarchy. The Group recognises transfers between levels of the fair value hierarchy when there is a significant change in either its principal market or the level of observability of the inputs to the valuation techniques as at the end of the reporting period.
• Level 1: Fair value measurements are those derived from unadjusted quoted prices in active markets for identical assets or liabilities
• Level 2: Fair value measurements are those with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable
• Level 3: Fair value measurements are those where inputs which could have a significant effect on the instrument's valuation are not based on observable market data
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The following tables show the classification of financial instruments held at fair value into the valuation hierarchy:
Assets | Level 1$million | Level 2$million | Level 3$million | Total$million |
Financial instruments held at fair value through profit or loss | ||||
Loans and advances to banks | - | 2,126 | - | 2,126 |
Loans and advances to customers | - | 4,145 | 1,223 | 5,368 |
Reverse repurchase agreements and other similar secured lending | - | 73,270 | 1,515 | 74,785 |
Debt securities and other eligible bills | 17,734 | 17,043 | 903 | 35,680 |
Of which: | ||||
Issued by Central banks & Governments | 14,636 | 6,171 | - | 20,807 |
Issued by corporates other than financial institutions1 | 482 | 3,958 | 655 | 5,095 |
Issued by financial institutions1 | 2,616 | 6,914 | 248 | 9,778 |
Equity shares | 2,701 | 3 | 175 | 2,879 |
Derivative financial instruments | 973 | 59,302 | 113 | 60,388 |
Of which: | ||||
Foreign exchange | 129 | 50,237 | 54 | 50,420 |
Interest rate | 16 | 7,401 | 28 | 7,445 |
Credit | - | 378 | 29 | 407 |
Equity and stock index options | - | 97 | 2 | 99 |
Commodity | 828 | 1,189 | - | 2,017 |
Investment securities | ||||
Debt securities and other eligible bills | 55,613 | 47,202 | 51 | 102,866 |
Of which: | ||||
Issued by Central banks & Governments | 47,196 | 18,322 | 51 | 65,569 |
Issued by corporates other than financial institutions1 | 1,520 | 2,079 | - | 3,599 |
Issued by financial institutions1 | 6,897 | 28,801 | - | 33,698 |
Equity shares | 128 | 7 | 690 | 825 |
Other Assets | - | - | 7 | 7 |
Total financial instruments at 30 June 2023² | 77,149 | 203,098 | 4,677 | 284,924 |
Liabilities | ||||
Financial instruments held at fair value through profit or loss | ||||
Deposits by banks | - | 1,689 | 252 | 1,941 |
Customer accounts | - | 14,146 | 880 | 15,026 |
Repurchase agreements and other similar secured borrowing | - | 42,175 | - | 42,175 |
Debt securities in issue | - | 9,886 | 521 | 10,407 |
Short positions | 5,149 | 4,077 | - | 9,226 |
Derivative financial instruments | 756 | 62,094 | 173 | 63,023 |
Of which: | ||||
Foreign exchange | 125 | 49,979 | 17 | 50,121 |
Interest rate | 28 | 10,039 | 7 | 10,074 |
Credit | - | 663 | 95 | 758 |
Equity and stock index options | - | 71 | 54 | 125 |
Commodity | 603 | 1,342 | - | 1,945 |
Other Liabilities | - | - | 8 | 8 |
Total financial instruments at 30 June 2023² | 5,905 | 134,067 | 1,834 | 141,806 |
1 Includes covered bonds of $6,963 million, securities issued by Multilateral Development Banks/International Organisations of $7,782 million and State-owned agencies and development banks of $7,098 million
2 The above table does not include held for sale assets of $39 million and liabilities of nil million. These are reported in Note 20 together with their fair value hierarchy
The fair value of derivatives and debt securities in issue classified as Level 2 in the fair value hierarchy that are subject to complex modelling techniques is $ 780 million.
There were no significant changes to valuation or levelling approaches during the period ended 30 June 2023.
There were no significant transfers of financial assets and liabilities measured at fair value between Level 1 and Level 2 during the period ended 30 June 2023.
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Assets | Level 1$million | Level 2$million | Level 3$million | Total$million |
Financial instruments held at fair value through profit or loss | ||||
Loans and advances to banks | - | 955 | 21 | 976 |
Loans and advances to customers | - | 4,741 | 1,805 | 6,546 |
Reverse repurchase agreements and other similar secured lending | 3 | 62,490 | 1,998 | 64,491 |
Debt securities and other eligible bills | 14,702 | 14,707 | 1,153 | 30,562 |
Of which: | ||||
Issued by Central Banks & Governments | 14,086 | 4,734 | - | 18,820 |
Issued by corporates other than financial institutions1 | 91 | 3,452 | 517 | 4,060 |
Issued by financial institutions1 | 525 | 6,521 | 636 | 7,682 |
Equity shares | 3,024 | 24 | 182 | 3,230 |
Derivative financial instruments | 892 | 62,781 | 44 | 63,717 |
Of which: | ||||
Foreign exchange | 139 | 54,020 | 13 | 54,172 |
Interest rate | 33 | 7,351 | 28 | 7,412 |
Credit | - | 410 | 1 | 411 |
Equity and stock index options | - | 98 | 2 | 100 |
Commodity | 720 | 902 | - | 1,622 |
Investment securities | ||||
Debt securities and other eligible bills | 56,401 | 55,525 | - | 111,926 |
Of which: | ||||
Issued by Central Banks & Governments | 45,151 | 22,171 | - | 67,322 |
Issued by corporates other than financial institutions1 | 1,775 | 4,045 | - | 5,820 |
Issued by financial institutions1 | 9,475 | 29,309 | - | 38,784 |
Equity shares | 146 | 7 | 655 | 808 |
Other Assets | - | - | 7 | 7 |
Total financial instruments at 31 December 2022² | 75,168 | 201,230 | 5,865 | 282,263 |
Liabilities | ||||
Financial instruments held at fair value through profit or loss | ||||
Deposits by banks | - | 778 | 288 | 1,066 |
Customer accounts | - | 10,734 | 972 | 11,706 |
Repurchase agreements and other similar secured borrowing | - | 51,706 | - | 51,706 |
Debt securities in issue | - | 8,121 | 451 | 8,572 |
Short positions | 4,085 | 2,722 | 40 | 6,847 |
Derivative financial instruments | 642 | 69,099 | 121 | 69,862 |
Of which: | ||||
Foreign exchange | 101 | 56,710 | 12 | 56,823 |
Interest rate | 29 | 10,020 | 12 | 10,061 |
Credit | - | 899 | 42 | 941 |
Equity and stock index options | - | 191 | 55 | 246 |
Commodity | 512 | 1,279 | - | 1,791 |
Other Liabilities | - | - | 6 | 6 |
Total financial instruments at 31 December 2022² | 4,727 | 143,160 | 1,878 | 149,765 |
1 Includes covered bonds of $8,455 million, securities issued by Multilateral Development Banks/International Organisations of $11,438 million , and State-owned agencies and development banks of $9,211 million
2 The above table does not include held for sale assets of $3 million and liabilities of $5 million. These are reported in Note 20 together with their fair value hierarchy
The fair value of derivatives and debt securities in issue classified as Level 2 in the fair value hierarchy that are subject to complex modelling techniques is $781 million.
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Fair value hierarchy - financial instruments measured at amortised cost
The following table shows the carrying amounts and incorporates the Group's estimate of fair values of those financial assets and liabilities not presented on the Group's balance sheet at fair value. These fair values may be different from the actual amount that will be received or paid on the settlement or maturity of the financial instrument. For certain instruments, the fair value may be determined using assumptions for which no observable prices are available.
Carrying value$million | Fair value | ||||
Level 1$million | Level 2$million | Level 3$million | Total$million | ||
Assets | |||||
Cash and balances at central banks¹ | 86,339 | - | 86,339 | - | 86,339 |
Loans and advances to banks | 44,602 | - | 44,409 | 145 | 44,554 |
of which - reverse repurchase agreements and other similar secured lending | 1,383 | - | 1,381 | - | 1,381 |
Loans and advances to customers | 290,137 | - | 46,351 | 242,133 | 288,484 |
of which - reverse repurchase agreements and other similar secured lending | 10,950 | - | 10,014 | 936 | 10,950 |
Investment securities² | 58,388 | - | 56,205 | 38 | 56,243 |
Other assets¹ | 45,367 | - | 45,367 | - | 45,367 |
Assets held for sale | 2,444 | - | 1,891 | 553 | 2,444 |
At 30 June 2023 | 527,277 | - | 280,562 | 242,869 | 523,431 |
Liabilities | |||||
Deposits by banks | 28,560 | - | 28,561 | - | 28,561 |
Customer accounts | 469,567 | - | 469,995 | - | 469,995 |
Repurchase agreements and other similar secured borrowing | 13,320 | - | 13,320 | - | 13,320 |
Debt securities in issue | 63,815 | 27,148 | 36,367 | - | 63,515 |
Subordinated liabilities and other borrowed funds | 11,865 | 10,906 | 313 | - | 11,219 |
Other liabilities¹ | 49,958 | - | 49,958 | - | 49,958 |
Liabilities held for sale | 1,194 | - | 1,194 | - | 1,194 |
At 30 June 2023 | 638,279 | 38,054 | 599,708 | - | 637,762 |
1 The carrying amount of these financial instruments is considered to be a reasonable approximation of fair value as they are short-term in nature or reprice to current market rates frequently
2 Includes Government bonds and Treasury bills of $16,824 million at 30 June 2023
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Carrying value$million | Fair value | ||||
Level 1$million | Level 2$million | Level 3$million | Total$million | ||
Assets | |||||
Cash and balances at central banks¹ | 58,263 | - | 58,263 | - | 58,263 |
Loans and advances to banks | 39,519 | - | 39,488 | - | 39,488 |
of which - reverse repurchase agreements and other similar secured lending | 978 | - | 924 | - | 924 |
Loans and advances to customers | 310,647 | - | 58,663 | 251,560 | 310,223 |
of which - reverse repurchase agreements and other similar secured lending | 24,498 | - | 15,727 | 8,911 | 24,638 |
Investment securities² | 59,714 | - | 56,444 | 25 | 56,469 |
Other assets¹ | 39,295 | - | 39,295 | - | 39,295 |
Assets held for sale | 1,388 | 344 | 946 | 98 | 1,388 |
At 31 December 2022 | 508,826 | 344 | 253,099 | 251,683 | 505,126 |
Liabilities | |||||
Deposits by banks | 28,789 | - | 28,813 | - | 28,813 |
Customer accounts | 461,677 | - | 461,665 | - | 461,665 |
Repurchase agreements and other similar secured borrowing | 2,108 | - | 2,108 | - | 2,108 |
Debt securities in issue | 61,242 | 24,624 | 36,148 | - | 60,772 |
Subordinated liabilities and other borrowed funds | 13,715 | 12,445 | 385 | - | 12,830 |
Other liabilities¹ | 42,915 | - | 42,914 | 1 | 42,915 |
Liabilities held for sale | 1,230 | 398 | 832 | - | 1,230 |
At 31 December 2022 | 611,676 | 37,467 | 572,865 | 1 | 610,333 |
1 The carrying amount of these financial instruments is considered to be a reasonable approximation of fair value as they are short-term in nature or reprice to current market rates frequently
2 Includes Government bonds and Treasury bills of $17,943 million at 31 December 2022
The Group has changed its method of determining the cost of its portfolio of Investment Securities held at amortised cost and Debt securities and other eligible bills, other than those included within financial instruments held at fair value through profit or loss, from the weighted average cost method to the first-in-first-out method. This change in accounting policy will affect the calculation of gains or losses upon derecognition of such instruments and the determination of the initial credit risk of these instruments, to better align with the IFRS 9 requirements for recognising and measuring impairment losses. The change was made prospectively for certain but not all securities and transactions. It is impracticable for the Group to determine the impact of this approach for each security and each transaction that was executed in previous periods.
Fair value of financial instruments
Level 3 Summary and significant unobservable inputs
The following table presents the Group's primary Level 3 financial instruments which are held at fair value. The table also presents the valuation techniques used to measure the fair value of those financial instruments, the significant unobservable inputs, the range of values for those inputs and the weighted average of those inputs:
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Instrument | Value as at30 June 2023 | Principal valuationtechnique | Significant unobservable inputs | Range1 | Weighted average2 | |
Assets$million | Liabilities$million | |||||
Loans and advances to banks | - | - | Discounted cash flows | Credit spreads | N/A | N/A |
Loans and advances to customers | 1,223 | - | Discounted cash flows | Price/yield | 0.01% - 28.7% | 13.2% |
Recovery rates | 4.7% - 100% | 44.9% | ||||
Reverse repurchase agreements and other similar secured lending | 1,515 | - | Discounted cash flows | Repo curve | 5.3% -8.3% | 6.9% |
Price/yield | 1.6% - 7.9% | 7.8% | ||||
Debt securities, alternative tier one and other eligible securities | 903 | - | Discounted cash flows | Price/yield | 0.01%-48.5% | 9.9% |
Credit spreads | 0.2% - 1.5% | 0.7% | ||||
Government bonds and treasury bills | 51 | - | Discounted cash flows | Price/yield | 17.7% - 21.8% | 19.7% |
Asset-backed securities | - | - | Discounted cash flows | Price/yield | N/A | N/A |
Equity shares (includes private equity investments) | 865 | - | Comparable pricing/yield | EV/EBITDA multiples | 6.2x - 11.5x | 11.4x |
EV/Revenue multiples | 9.0x - 36.3x | 18.2x | ||||
P/E multiples | 11.3x - 33.1x | 15.8x | ||||
P/B multiples | 0.3x - 3.9x | 1.4x | ||||
P/S multiples | 1.5x | 1.5x | ||||
Liquidity discount | 0.0% - 20.0% | 8.9% | ||||
Discounted cash flows | Discount rates | 7.6% - 34.5% | 13.1% | |||
Option pricing model | Equity value based onEV/Revenue multiples | 8.0x - 52.0x | 25.9x | |||
Equity value based onEV/EBITDA multiples | 2.4x | 2.4x | ||||
Equity value based on volatility | 60.0% | 60.0% | ||||
Other Assets | 7 | - | NAV | N/A | N/A | N/A |
Derivative financial instruments of which: | ||||||
Foreign exchange | 54 | 17 | Option pricing model | Foreign exchange option implied volatility | (11.9%) - 7.5% | 1.0% |
Discounted cash flows | Foreign exchange curves | (1.8)%-24.3% | 5.6% | |||
Interest rate | 28 | 7 | Discounted cash flows | Interest rate curves | (1.8)% - 21.5% | 8.8% |
Foreign exchange curves | 1.8%-13.9% | 3.0% | ||||
Option pricing model | Foreign exchange option implied volatility | (6.8)%-6.8% | 1.2% | |||
Credit | 29 | 95 | Discounted cash flows | Credit spreads | 0.2%-2.5% | 0.9% |
Price/yield | N/A | N/A | ||||
Equity and stock index | 2 | 54 | Internal pricing model | Equity-Equity correlation | 45.0%-100% | 85.1% |
Equity-FX correlation | (40.0)%- 45.0% | 12.0% | ||||
Deposits by banks | - | 252 | Discounted cash flows | Credit spreads | 0.3%-3.4% | 2.1% |
Price/yield | 5.3% - 10.0% | 6.9% | ||||
Interest rate curves | 2.6% - 30.8% | 5.2% | ||||
Internal pricing model | Equity-Equity correlation | 45.0%-100% | 85.1% | |||
Equity-FX correlation | (40.0)%- 45.0% | 12.0% | ||||
Customer accounts | - | 880 | Discounted cash flows | Credit spreads | N/A | N/A |
Interest rate curves | 8.1% - 9.4% | 8.7% | ||||
Price/yield | 4.1% - 27.8% | 17.0% | ||||
Internal pricing model | Equity-Equity correlation | 45.0%-100% | 85.1% | |||
Equity-FX correlation | (40.0)%- 45.0% | 12.0% | ||||
Debt securities in issue | - | 521 | Discounted cash flows | Credit spreads | 1.0% - 8.4% | 2.5% |
Price/yield | 4.5% - 12.4% | 11.8% | ||||
Internal pricing model | Equity-Equity correlation | 45.0%-100% | 85.1% | |||
Equity-FX correlation | (40.0)%- 45.0% | 12.0% | ||||
Short positions | - | - | Discounted cash flows | Price/yield | N/A | N/A |
Other Liabilities | - | 8 | Comparablepricing/yield | EV/EBITDA multiples | 3.5x - 10.7x | 7.7x |
Total | 4,677 | 1,834 | ||||
1 The ranges of values shown in the above table represent the highest and lowest levels used in the valuation of the Group's Level 3 financial instruments as at 30 June 2023. The ranges of values used are reflective of the underlying characteristics of these Level 3 financial instruments based on the market conditions at the balance sheet date. However, these ranges of values may not represent the uncertainty in fair value measurements of the Group's Level 3 financial instruments
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2 Weighted average for non-derivative financial instruments has been calculated by weighting inputs by the relative fair value. Weighted average for derivatives has been provided by weighting inputs by the risk relevant to that variable. N/A has been entered for the cases where weighted average is not a meaningful indicator
Instrument | Value as at31 December 2022 | Principal valuation technique | Significant unobservable inputs | Range1 | Weighted average2 | |
Assets$million | Liabilities$million | |||||
Loans and advances to banks | 21 | - | Discounted cash flows | Price/yield | N/A | N/A |
Credit spreads | 2.9% | 2.9% | ||||
Loans and advances to customers | 1,805 | - | Discounted cash flows | Price/yield | 0.3% - 18.2% | 5.3% |
Recovery rates | 5.0% - 100% | 90.5% | ||||
Reverse repurchase agreements and other similar secured lending | 1,998 | - | Discounted cash flows | Repo curve | 2.3% - 8.0% | 6.2% |
Price/yield | 1.9%-7.2% | 6.0% | ||||
Debt securities, alternative tier one and other eligible securities | 1,152 | - | Discounted cash flows | Price/yield | 3.1% - 48.5% | 7.1% |
Recovery rates | 0.0% - 1.0% | 0.2% | ||||
Government bonds and treasury bills | - | - | Discounted cash flows | Price/yield | N/A | N/A |
Asset-backed securities | 1 | - | Discounted cash flows | Price/yield | 6.8% | 6.8% |
Equity shares (includes private equity investments) | 837 | - | Comparable pricing/yield | EV/EBITDA multiples | 7.0x - 13.1x | 11.0x |
EV/Revenue multiples | 8.2x - 23.2x | 12.9x | ||||
P/E multiples | 13.4x - 29.7x | 17.6x | ||||
P/B multiples | 0.3x - 3.3x | 1.3x | ||||
P/S multiples | 2.1x - 2.2x | 2.2x | ||||
Liquidity discount | 10.0% - 29.7% | 17.5% | ||||
Discounted cash flows | Discount rates | 7.5% - 16.4% | 9.4% | |||
Option pricing model | Equity value based onEV/Revenue multiples | 4.8x - 76.1x | 32.9x | |||
Equity value based onEV/EBITDA multiples | 2.6x | 2.6x | ||||
Equity value based on volatility | 60.0% | 60.0% | ||||
Other Assets | 7 | - | NAV | N/A | N/A | N/A |
Derivative financial instruments of which: | ||||||
Foreign exchange | 13 | 12 | Option pricing model | Foreign exchange option implied volatility | (21.0)% - 21.0% | (2.7)% |
Discounted cash flows | Foreign exchange curves | (4.6)% - 81.8% | 15.9% | |||
Interest rate | 28 | 12 | Discounted cash flows | Interest rate curves | (2.1)% - 50.2% | 10.6% |
Credit | 1 | 42 | Discounted cash flows | Credit spreads | 0.1% - 2.3% | 1.4% |
Price/yield | 7.2% - 9.7% | 7.2% | ||||
Equity and stock index | 2 | 55 | Internal pricing model | Equity correlation | 30.0% - 96.0% | 67.0% |
Equity-FX correlation | (70.0)% - 85.0% | 37.0% | ||||
Deposits by banks | - | 288 | Discounted cash flows | Credit spreads | 0.9% - 3.4% | 1.8% |
Price/yield | 6.0% | 6.0% | ||||
Customer accounts | - | 972 | Discounted cash flows | Credit spreads | 0.9% - 19.1% | 10.3% |
Internal pricing model | Equity correlation | 30.0% - 96.0% | 67.0% | |||
Equity-FX correlation | (70.0)% - 85.0% | 37.0% | ||||
Discounted cash flows | Interest rate curves | N/A | N/A | |||
Price/yield | 3.1% - 22.9% | 17.8% | ||||
Debt securities in issue | - | 451 | Discounted cash flows | Credit Spreads | 0.3% - 7.0% | 4.7% |
Price/Yield | 6.8% - 12.4% | 9.1% | ||||
Internal pricing model | Equity-Equity Correlation | 30.0% - 96.0% | 67.0% | |||
Equity-FX Correlation | (70.0)% - 85.0% | 37.0% | ||||
Short position | - | 40 | Discounted cash flows | Price/yield | 6.8% | 6.8% |
Other Liabilities | - | 6 | Comparablepricing/yield | EV/EBITDA multiples | 4.2x - 9.0x | 6.1x |
Total | 5,865 | 1,878 | ||||
1 The ranges of values shown in the above table represent the highest and lowest levels used in the valuation of the Group's Level 3 financial instruments as at 31 December 2022. The ranges of values used are reflective of the underlying characteristics of these Level 3 financial instruments based on the market conditions at the balance sheet date. However, these ranges of values may not represent the uncertainty in fair value measurements of the Group's Level 3 financial instruments
2 Weighted average for non-derivative financial instruments has been calculated by weighting inputs by the relative fair value. Weighted average for derivatives has been provided by weighting inputs by the risk relevant to that variable. N/A has been entered for the cases where weighted average is not a meaningful indicator
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The following section describes the significant unobservable inputs identified in the valuation technique table:
• Comparable price/yield is a valuation methodology in which the price of a comparable instrument is used to estimate the fair value where there are no direct observable prices. Yield is the interest rate that is used to discount the future cash flows in a discounted cash flow model. Valuation using comparable instruments can be done by calculating an implied yield (or spread over a liquid benchmark) from the price of a comparable instrument, then adjusting that yield (or spread) to derive a value for the instrument. The adjustment should account for relevant differences in the financial instruments such as maturity and/or credit quality. Alternatively, a price-to-price basis can be assumed between the comparable instrument and the instrument being valued in order to establish the value of the instrument (for example, deriving a fair value for a junior unsecured bond from the price of a senior secured bond). An increase in price, in isolation, would result in a favourable movement in the fair value of the asset. An increase in yield, in isolation, would result in an unfavourable movement in the fair value of the asset
• Correlation is the measure of how movement in one variable influences the movement in another variable. An equity correlation is the correlation between two equity instruments while an interest rate correlation refers to the correlation between two swap rates
• Credit spread represents the additional yield that a market participant would demand for taking exposure to the Credit Risk of an instrument
• Discount rate refers to the rate of return used to convert expected cash flows into present value
• Equity-FX correlation is the correlation between equity instrument and foreign exchange instrument
• EV/EBITDA multiple is the ratio of Enterprise Value (EV) to Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA). EV is the aggregate market capitalisation and debt minus the cash and cash equivalents. An increase in EV/EBITDA multiple will result in a favourable movement in the fair value of the unlisted firm
• EV/Revenue multiple is the ratio of Enterprise Value (EV) to Revenue. An increase in EV/Revenue multiple will result in a favourable movement in the fair value of the unlisted firm
• Foreign exchange curves is the term structure for forward rates and swap rates between currency pairs over a specified period
• Net asset value (NAV) is the value of an entity's assets after deducting any liabilities
• Interest rate curves is the term structure of interest rates and measures of future interest rates at a particular point in time
• Liquidity discounts in the valuation of unlisted investments are primarily applied to the valuation of unlisted firms' investments to reflect the fact that these stocks are not actively traded. An increase in liquidity discount will result in an unfavourable movement in the fair value of the unlisted firm
• Price-Earnings (P/E) multiple is the ratio of the market value of the equity to the net income after tax. An increase in P/E multiple will result in a favourable movement in the fair value of the unlisted firm
• Price-Book (P/B) multiple is the ratio of the market value of equity to the book value of equity. An increase in P/B multiple will result in a favourable movement in the fair value of the unlisted firm
• Price-Sales (P/S) multiple is the ratio of the market value of equity to sales. An increase in P/S multiple will result in a favourable movement in the fair value of the unlisted firm
• Recovery rates is the expectation of the rate of return resulting from the liquidation of a particular loan. As the probability of default increases for a given instrument, the valuation of that instrument will increasingly reflect its expected recovery level assuming default. An increase in the recovery rate, in isolation, would result in a favourable movement in the fair value of the loan
• Repo curve is the term structure of repo rates on repos and reverse repos at a particular point in time
• Volatility represents an estimate of how much a particular instrument, parameter or index will change in value over time. Generally, the higher the volatility, the more expensive the option will be
Page 98
Level 3 movement tables - financial assets
The table below analyses movements in Level 3 financial assets carried at fair value.
Assets | 30.06.23 | |||||||||
Held at fair value through profit or loss | Derivative financial instruments$million | Investment securities | Total$million | |||||||
Loans and advancesto banks$million | Loans and advances to customers$million | Reverse repurchase agreements and other similar secured lending$million | Debt securities, alternativetier oneand other eligible bills$million | Equity shares$million | Other Assets$million | Debt securities, alternativetier oneand other eligible bills$million | Equity shares$million | |||
At 01 January 2023 | 21 | 1,805 | 1,998 | 1,153 | 182 | 7 | 44 | - | 655 | 5,865 |
Total (losses)/gains recognised inincome statement | - | (62) | (12) | (217) | 1 | - | 13 | - | - | (277) |
Net trading income | - | (62) | (12) | (217) | - | - | 13 | - | - | (278) |
Other operating income | - | - | - | - | 1 | - | - | - | - | 1 |
Total gainsrecognised in other comprehensiveincome (OCI) | - | - | - | - | - | - | - | 1 | 69 | 70 |
Fair value throughOCI reserve | - | - | - | - | - | - | - | - | 77 | 77 |
Exchange difference | - | - | - | - | - | - | - | 1 | (8) | (7) |
Purchases | - | 313 | 3,020 | 565 | 1 | - | 124 | 5 | 4 | 4,032 |
Sales | - | (481) | (3,156) | (282) | (9) | - | (56) | (10) | - | (3,994) |
Settlements | - | (221) | (335) | (310) | - | - | (9) | - | - | (875) |
Transfers out1 | (21) | (206) | - | (6) | - | - | (3) | (4) | (39) | (279) |
Transfers in2 | - | 75 | - | - | - | - | - | 59 | 1 | 135 |
At 30 June 2023 | - | 1,223 | 1,515 | 903 | 175 | 7 | 113 | 51 | 690 | 4,677 |
Total unrealised (losses)/gains recognised in the income statement, within net trading income, relating to change in fair valueof assets held at30 June 2023 | - | (10) | - | 14 | (1) | - | (10) | - | - | (7) |
1 Transfers out includes loans and advances, debt securities, alternative tier one and other eligible bills, equity shares and derivative financial instruments where the valuation parameters became observable during the period and were transferred to Level 1 and Level 2
2 Transfers in primarily relate to loans and advances, debt securities, alternative tier one and other eligible bills and equity shares where the valuation parameters become unobservable during the period
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The table below analyses movements in Level 3 financial assets carried at fair value.
Assets | Held at fair value through profit or loss | Derivative financial instruments$million | Investment securities | Total$million | ||||||
Loans and advances to banks$million | Loans and advances to customers$million | Reverse repurchase agreementsand othersimilarsecuredlending$million | Debt securities, alternativetier oneand other eligible bills$million | Equity shares$million | Other Assets$million | Debt securities, alternativetier oneand other eligible bills$million | Equity shares$million | |||
At 01 January 2022 | 9 | 1,357 | 1,566 | 349 | 186 | 26 | 90 | 40 | 493 | 4,116 |
Total (losses)/gains recognised inincome statement | (4) | (76) | 2 | (129) | 4 | - | 13 | - | - | (190) |
Net trading income | (4) | (76) | 2 | (129) | 4 | - | 13 | - | - | (190) |
Other operating income | - | - | - | - | - | - | - | - | - | - |
Total (losses) recognised in other comprehensiveincome (OCI) | - | - | - | - | - | - | - | - | (40) | (40) |
Fair value throughOCI reserve | - | - | - | - | - | - | - | - | (32) | (32) |
Exchange difference | - | - | - | - | - | - | - | - | (8) | (8) |
Purchases | 90 | 326 | 2,764 | 347 | 58 | - | 44 | - | 115 | 3,743 |
Sales | (9) | (255) | (2,497) | (104) | (3) | (1) | (46) | - | (1) | (2,916) |
Settlements | - | (321) | (221) | (2) | - | - | (4) | (25) | - | (573) |
Transfers out1 | - | (65) | - | - | - | - | (4) | - | - | (69) |
Transfers in2 | - | 19 | - | 76 | - | - | 11 | - | - | 106 |
At 30 June 2022 | 86 | 985 | 1,614 | 537 | 245 | 25 | 104 | 14 | 567 | 4,177 |
Total unrealised (losses)/gains recognised in the income statement, within net trading income, relating to change in fair valueof assets held at30 June 2022 | - | (40) | - | (2) | 8 | - | 3 | - | - | (31) |
1 Transfers out include loans and advances and derivative financial instruments where the valuation parameters became observable during the period and were transferred to Level 1 and Level 2
2 Transfers in primarily relate to loans and advances, debt securities, alternative tier one and other eligible bills and derivative financial instruments where the valuation parameters become unobservable during the period
Page 100
Assets | Held at fair value through profit or loss | Derivative financial instruments$million | Investment securities | Total$million | ||||||
Loans and advances to banks$million | Loans and advances to customers$million | Reverse repurchase agreements and other similar secured lending$million | Debt securities, alternativetier oneand other eligible bills$million | Equity shares$million | Other Assets$million | Debt securities, alternativetier oneand other eligible bills$million | Equity shares$million | |||
At 01 July 2022 | 86 | 985 | 1,614 | 537 | 245 | 25 | 104 | 14 | 567 | 4,177 |
Total (losses)/gains recognised inincome statement | (12) | (56) | - | 136 | - | - | 17 | - | - | 85 |
Net trading income | (12) | (56) | - | 136 | - | - | 17 | - | - | 85 |
Other operating income | - | - | - | - | - | - | - | - | - | - |
Total (losses) /gains recognised in other comprehensive income (OCI) | - | - | - | - | - | - | - | (4) | 33 | 29 |
Fair value throughOCI reserve | - | - | - | - | - | - | - | - | 31 | 31 |
Exchange difference | - | - | - | - | - | - | - | (4) | 2 | (2) |
Purchases | (34) | 1,279 | 3,674 | 716 | - | 8 | 80 | - | 60 | 5,783 |
Sales | (21) | 18 | (2,987) | (238) | (63) | (8) | (53) | - | (5) | (3,357) |
Settlements | (19) | (556) | (303) | 1 | - | - | (80) | - | - | (957) |
Transfers out1 | - | (95) | - | - | - | - | (25) | (10) | - | (130) |
Transfers in2 | 21 | 230 | - | 1 | - | (18) | 1 | - | - | 235 |
At 31 December 2022 | 21 | 1,805 | 1,998 | 1,153 | 182 | 7 | 44 | - | 655 | 5,865 |
Total unrealised gains/(losses) recognised in the income statement, within net trading income, relating to change in fair valueof assets held at31 December 2022 | - | 40 | - | 2 | (5) | - | (5) | - | - | 32 |
1 Transfers out include loans and advances, debt securities, alternative tier one and other eligible bills and derivative financial instruments where the valuation parameters became observable during the period and were transferred to Level 1 and Level 2
2 Transfers in primarily relate to loans and advances, debt securities, alternative tier one and other eligible bills, other assets and derivative financial instruments where the valuation parameters become unobservable during the period
Level 3 movement tables - financial liabilities
30.06.23 | |||||||
Depositsby banks$million | Customer accounts$million | Debt securitiesin issue$million | Derivative financial instruments$million | Short positions$million | Other liabilities$million | Total$million | |
At 01 January 2023 | 288 | 972 | 451 | 121 | 40 | 6 | 1,878 |
Total (gains)/losses recognised in income statement -net trading income | (9) | 16 | (5) | 3 | - | 2 | 7 |
Issues | 271 | 868 | 654 | 225 | - | - | 2,018 |
Settlements | (298) | (989) | (558) | (165) | (40) | - | (2,050) |
Transfers out1 | - | (5) | (21) | (13) | - | - | (39) |
Transfers in2 | - | 18 | - | 2 | - | - | 20 |
At 30 June 2023 | 252 | 880 | 521 | 173 | - | 8 | 1,834 |
Total unrealised (gains)/losses recognised in the income statement, within net trading income, relating to change in fair value of liabilities held at 30 June 2023 | - | (6) | 3 | (12) | - | - | (15) |
1 Transfers out primarily relate to customer accounts, debt securities in issue and derivative financial instruments where the valuation parameters became observable during the period and were transferred to Level 2 financial liabilities
2 Transfers in primarily relate to customer accounts and derivative financial instruments where the valuation parameters become unobservable during the period
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30.06.22 | |||||||
Depositsby banks$million | Customer accounts$million | Debt securitiesin issue$million | Derivative financial instruments$million | Short positions$million | Other liabilities$million | Total$million | |
At 01 January 2022 | 283 | 454 | 821 | 94 | - | 1 | 1,653 |
Total (gains)/losses recognised in income statement -net trading income | (15) | (56) | (142) | 104 | (3) | 3 | (109) |
Issues | 223 | 934 | 387 | 89 | 100 | - | 1,733 |
Settlements | (172) | (647) | (473) | (89) | - | - | (1,381) |
Transfers out1 | - | - | (24) | (3) | - | - | (27) |
Transfers in2 | - | - | 76 | 1 | - | - | 77 |
At 30 June 2022 | 319 | 685 | 645 | 196 | 97 | 4 | 1,946 |
Total unrealised (gains) recognised in the income statement, within net trading income, relating to change in fair value of liabilities held at 30 June 2022 | - | (2) | (7) | (2) | - | - | (11) |
1 Transfers out primarily relate to debt securities in issue and derivative financial instruments where the valuation parameters became observable during the period and were transferred to Level 2 financial liabilities
2 Transfers in primarily relate to debt securities in issue and derivative financial instruments where the valuation parameters become unobservable during the period
31.12.22 | |||||||
Depositsby banks$million | Customer Accounts$million | Debt securitiesin issue$million | Derivative financial instruments$million | Short positions$million | Other liabilities$million | Total$million | |
At 01 July 2022 | 319 | 685 | 645 | 196 | 97 | 4 | 1,946 |
Total (gains)/losses recognised in income statement -net trading income | (21) | (26) | (16) | 51 | 2 | (10) | |
Issues | 224 | 884 | 428 | 89 | 40 | - | 1,665 |
Settlements | (229) | (620) | (593) | (203) | (97) | - | (1,742) |
Transfers out1 | (5) | - | (14) | (18) | - | (37) | |
Transfers in2 | - | 49 | 1 | 6 | - | 56 | |
At 31 December 2022 | 288 | 972 | 451 | 121 | 40 | 6 | 1,878 |
Total unrealised (gains) recognised in the income statement, within net trading income, relating to change in fair value of liabilities held at 31 December 2022 | (1) | (15) | - | (1) | - | (17) | |
1 Transfers out primarily relate to bank deposits, debt securities in issue and derivative financial instruments where the valuation parameters became observable during the period and were transferred to Level 2 financial liabilities
2 Transfers in primarily relate to customer accounts, debt securities in issue and derivative financial instruments where the valuation parameters become unobservable during the period
Sensitivities in respect of the fair values of Level 3 assets and liabilities
Sensitivity analysis is performed on products with significant unobservable inputs. The Group applies a 10 per cent increase or decrease on the values of these unobservable inputs, to generate a range of reasonably possible alternative valuations. The percentage shift is determined by statistical analysis performed on a set of reference prices based on the composition of the Group's Level 3 inventory as the measurement date. Favourable and unfavourable changes (which show the balance adjusted for input change) are determined on the basis of changes in the value of the instrument as a result of varying the levels of the unobservable parameters. The Level 3 sensitivity analysis assumes a one-way market move and does not consider offsets for hedges.
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Held at fair value through profit or loss | Fair value through other comprehensive income | |||||
Net exposure$million | Favourablechanges$million | Unfavourablechanges$million | Net exposure$million | Favourablechanges$million | Unfavourablechanges$million | |
Financial instruments held at fair value | ||||||
Loans and advances | 1,223 | 1,236 | 1,189 | - | - | - |
Reverse Repurchase agreements and other similar secured lending | 1,515 | 1,522 | 1,508 | - | - | - |
Asset backed securities | - | - | - | - | - | - |
Debt securities, alternative tier one and other eligible bills | 903 | 1,027 | 782 | 51 | 55 | 47 |
Equity shares | 175 | 193 | 157 | 690 | 749 | 631 |
Other Assets | 7 | 8 | 6 | - | - | - |
Derivative financial instruments | (60) | (31) | (89) | - | - | - |
Customers accounts | (880) | (823) | (937) | - | - | - |
Deposits by banks | (252) | (239) | (267) | - | - | - |
Short positions | - | - | - | - | - | - |
Debt securities in issue | (521) | (476) | (566) | - | - | - |
Other Liabilities | (8) | (7) | (9) | - | - | - |
At 30 June 2023 | 2,102 | 2,410 | 1,774 | 741 | 804 | 678 |
Financial instruments held at fair value | ||||||
Loans and advances | 1,826 | 1,851 | 1,758 | - | - | - |
Reverse Repurchase agreements and other similar secured lending | 1,998 | 2,013 | 1,979 | - | - | - |
Asset backed securities | 1 | 1 | 1 | - | - | - |
Debt securities, alternative tier one and other eligible bills | 1,152 | 1,168 | 1,124 | - | - | - |
Equity shares | 182 | 200 | 164 | 655 | 715 | 595 |
Other Assets | 7 | 8 | 6 | - | - | - |
Derivative financial instruments | (77) | (44) | (109) | - | - | - |
Customers accounts | (972) | (934) | (1,010) | - | - | - |
Deposits by banks | (288) | (283) | (293) | - | - | - |
Short positions | (40) | (39) | (41) | - | - | - |
Debt securities in issue | (451) | (419) | (482) | - | - | - |
Other Liabilities | (6) | (5) | (7) | - | - | - |
At 31 December 2022 | 3,332 | 3,517 | 3,090 | 655 | 715 | 595 |
The reasonably possible alternatives could have increased or decreased the fair values of financial instruments held at fair value through profit or loss and those classified as fair value through other comprehensive income by the amounts disclosed below.
Financial instruments | Fair value changes | 30.06.23$million | 31.12.22$million |
Held at fair value through profit or loss | Possible increase | 308 | 185 |
Possible decrease | (328) | (242) | |
Fair value through other comprehensive income | Possible increase | 63 | 60 |
Possible decrease | (63) | (60) |
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14. Derivative financial instruments
The tables below analyse the notional principal amounts and the positive and negative fair values of derivative financial instruments. Notional principal amounts are the amounts of principal underlying the contract at the reporting date.
Derivatives
Derivatives | 30.06.23 | 31.12.22 | ||||
Notional principal amounts$million | Assets$million | Liabilities$million | Notional principal amounts$million | Assets$million | Liabilities$million | |
Foreign exchange derivative contracts: | ||||||
Forward foreign exchange contracts | 3,493,329 | 35,864 | 35,038 | 3,154,440 | 38,162 | 39,376 |
Currency swaps and options | 1,152,637 | 14,556 | 15,083 | 1,168,026 | 16,010 | 17,447 |
4,645,966 | 50,420 | 50,121 | 4,322,466 | 54,172 | 56,823 | |
Interest rate derivative contracts: | ||||||
Swaps | 5,050,021 | 65,806 | 67,919 | 3,516,310 | 62,001 | 64,005 |
Forward rate agreements and options | 174,233 | 2,254 | 2,753 | 98,465 | 2,214 | 2,880 |
Exchange traded futures and options | 451,348 | 20 | 37 | 324,702 | 279 | 258 |
5,675,602 | 68,080 | 70,709 | 3,939,477 | 64,494 | 67,143 | |
Credit derivative contracts | 267,322 | 407 | 758 | 249,082 | 411 | 941 |
Equity and stock index options | 6,894 | 99 | 125 | 6,788 | 100 | 246 |
Commodity derivative contracts | 116,021 | 2,017 | 1,945 | 90,952 | 1,622 | 1,791 |
Gross total derivatives | 10,711,805 | 121,023 | 123,658 | 8,608,765 | 120,799 | 126,944 |
Offset | - | (60,635) | (60,635) | - | (57,082) | (57,082) |
Net Total derivatives | 10,711,805 | 60,388 | 63,023 | 8,608,765 | 63,717 | 69,862 |
The Group limits exposure to credit losses in the event of default by entering into master netting agreements with certain market counterparties. As required by IAS 32, exposures are only presented net in these accounts where they are subject to legal right of offset and intended to be settled net in the ordinary course of business.
The Group applies balance sheet offsetting only in the instance where we are able to demonstrate legal enforceability of the right to offset (e.g. via legal opinion) and the ability and intention to settle on a net basis (e.g. via operational practice).
The Group may enter into economic hedges that do not qualify for IAS 39 hedge accounting treatment, including derivative such as interest rate swaps, interest rate futures and cross currency swaps to manage interest rate and currency risks of the Group. These derivatives are measured at fair value, with fair value changes recognised in net trading income: refer to Market risk.
Derivatives held for hedging
The Group enters into derivative contracts for the purpose of hedging interest rate, currency and structural foreign exchange risks inherent in assets, liabilities and forecast transactions. The table below summarises the notional principal amounts and carrying values of derivatives designated in hedge accounting relationships at the reporting date.
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Included in the table above are derivatives held for hedging purposes as follows:
30.06.23 | 31.12.22 | |||||
Notional principal amounts$million | Assets$million | Liabilities$million | Notional principal amounts$million | Assets$million | Liabilities$million | |
Derivatives designated as fair value hedges: | ||||||
Interest rate swaps | 87,159 | 1,921 | 2,811 | 80,760 | 2,438 | 2,939 |
Currency swaps | 966 | 59 | 11 | 1,273 | 16 | 48 |
88,125 | 1,980 | 2,822 | 82,033 | 2,454 | 2,987 | |
Derivatives designated as cash flow hedges: | ||||||
Interest rate swaps | 26,458 | 31 | 584 | 31,977 | 100 | 671 |
Forward foreign exchange contracts | 8,215 | 460 | 59 | 11,987 | 99 | 385 |
Currency swaps | 12,100 | 211 | 163 | 11,787 | 86 | 362 |
46,773 | 702 | 806 | 55,751 | 285 | 1,418 | |
Derivatives designated as net investment hedges: | ||||||
Forward foreign exchange contracts | 17,209 | 340 | 24 | 14,576 | 120 | 141 |
Total derivatives held for hedging | 152,107 | 3,022 | 3,652 | 152,360 | 2,859 | 4,546 |
Interest rate benchmark reform
As at 30 June 2023, there are no derivative instruments designated in fair value or cash flow hedge accounting relationships that were linked to IBOR reference rates (31 December 2022: $65,769 million).
15. Reverse repurchase and repurchase agreements including other similar lending and borrowing
Reverse repurchase agreements and other similar secured lending
30.06.23$million | 31.12.22$million | |
Banks | 35,850 | 24,932 |
Customers | 51,268 | 65,035 |
87,118 | 89,967 | |
Of which: | ||
Fair value through profit or loss | 74,785 | 64,491 |
Banks | 34,467 | 23,954 |
Customers | 40,318 | 40,537 |
Held at amortised cost | 12,333 | 25,476 |
Banks | 1,383 | 978 |
Customers | 10,950 | 24,498 |
Under reverse repurchase and securities borrowing arrangements, the Group obtains securities on terms which permit it to repledge or resell the securities to others. Amounts on such terms are:
30.06.23$million | 31.12.22$million | |
Securities and collateral received (at fair value) | 115,863 | 124,989 |
Securities and collateral which can be repledged or sold (at fair value) | 114,760 | 123,759 |
Amounts repledged/transferred to others for financing activities, to satisfy liabilities under sale and repurchase agreements (at fair value) | 43,439 | 44,628 |
Repurchase agreements and other similar secured borrowing
30.06.23$million | 31.12.22$million | |
Banks | 10,297 | 6,968 |
Customers | 45,198 | 46,846 |
55,495 | 53,814 | |
Of which: | ||
Fair value through profit or loss | 42,175 | 51,706 |
Banks | 8,458 | 5,737 |
Customers | 33,717 | 45,969 |
Held at amortised cost | 13,320 | 2,108 |
Banks | 1,839 | 1,231 |
Customers | 11,481 | 877 |
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The tables below set out the financial assets provided as collateral for repurchase and other secured borrowing transactions:
Collateral pledged against repurchase agreements | 30.06.23 | ||||
Fair value throughprofit or loss$million | Fair valuethroughOther Comprehensive Income$million | Amortised cost$million | Off-balance sheet$million | Total$million | |
On-balance sheet | |||||
Debt securities and other eligible bills | 5,920 | 4,584 | 2,643 | - | 13,147 |
Off-balance sheet | |||||
Repledged collateral received | - | - | - | 43,439 | 43,439 |
At 30 June 2023 | 5,920 | 4,584 | 2,643 | 43,439 | 56,586 |
Collateral pledged against repurchase agreements | 31.12.22 | ||||
Fair value throughprofit or loss$million | Fair valuethroughOther Comprehensive Income$million | Amortised cost$million | Off-balance sheet$million | Total$million | |
On-balance sheet | |||||
Debt securities and other eligible bills | 2,956 | 3,630 | 4,917 | - | 11,503 |
Off-balance sheet | |||||
Repledged collateral received | - | - | - | 44,628 | 44,628 |
At 31 December 2022 | 2,956 | 3,630 | 4,917 | 44,628 | 56,131 |
16. Goodwill and intangible assets
30.06.23 | 31.12.22 | |||||||
Goodwill$million | Acquired intangibles$million | Computer software$million | Total$million | Goodwill$million | Acquired intangibles$million | Computer software$million | Total$million | |
Cost | ||||||||
At 1 January | 2,471 | 295 | 5,178 | 7,944 | 2,595 | 457 | 4,464 | 7,516 |
Exchange translation differences | (38) | (13) | (56) | (107) | (108) | (26) | (22) | (156) |
Additions | - | - | 513 | 513 | - | - | 1,096 | 1,096 |
Impairment | - | - | (90) | (90) | (14) | - | (7) | (21) |
Amounts written off | - | - | (29) | (29) | - | (136) | (348) | (484) |
Classified as held for sale | (18) | (5) | - | (23) | (2) | - | (5) | (7) |
At 30 June / 31 December | 2,415 | 277 | 5,516 | 8,208 | 2,471 | 295 | 5,178 | 7,944 |
Provision for amortisation | ||||||||
At 1 January | - | 276 | 1,799 | 2,075 | - | 437 | 1,608 | 2,045 |
Exchange translation differences | - | (13) | (22) | (35) | - | (29) | (11) | (40) |
Amortisation | - | - | 322 | 322 | - | 4 | 531 | 535 |
Impairment charge | - | - | (23) | (23) | - | - | 5 | 5 |
Amounts written off | - | - | (29) | (29) | - | (136) | (331) | (467) |
Classified as held for sale | - | - | - | - | - | - | (3) | (3) |
At 30 June / 31 December | - | 263 | 2,047 | 2,310 | - | 276 | 1,799 | 2,075 |
Net book value | 2,415 | 14 | 3,469 | 5,898 | 2,471 | 19 | 3,379 | 5,869 |
At 30 June 2023, accumulated goodwill impairment losses incurred from 1 January 2005 amounted to $ 3,331 million (31 December 2022: $3,331 million), of which Nil was recognised in 2023 (31 December 2022: $14 million).
The Group assessed the goodwill assigned to each of the Group's CGUs and determined that there are no indicators of impairment; therefore, estimates of the recoverable amounts for the CGUs were not calculated at 30 June 2023.
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17. Property, plant and equipment
30.06.23 | ||||||
Premises$million | Equipment$million | Operatinglease assets$million | Leasedpremisesassets$million | Leasedequipmentassets$million | Total$million | |
Cost or valuation | ||||||
At 1 January | 1,773 | 840 | 4,420 | 1,652 | 29 | 8,714 |
Exchange translation differences | (48) | (21) | - | (10) | (2) | (81) |
Additions1 | 14 | 35 | 156 | 158 | - | 363 |
Disposals and fully depreciated assets written off2 | (40) | (107) | (233) | (66) | (9) | (455) |
Transfers to assets held for sale | 15 | - | (4,343)³ | (3) | - | (4,331) |
As at 30 June | 1,714 | 747 | - | 1,731 | 18 | 4,210 |
Depreciation | ||||||
Accumulated at 1 January | 678 | 575 | 1,185 | 730 | 24 | 3,192 |
Exchange translation differences | (18) | (16) | - | (6) | (1) | (41) |
Charge for the year | 37 | 51 | 27 | 121 | 3 | 239 |
Impairment charge | - | - | - | 2 | - | 2 |
Attributable to assets sold, transferred or written off2 | (31) | (106) | (178) | (39) | (9) | (363) |
Transfers to assets held for sale | 2 | (1) | (1,034)³ | (2) | - | (1,035) |
Accumulated at 30 June | 668 | 503 | - | 806 | 17 | 1,994 |
Net book amount at 30 June | 1,046 | 244 | - | 925 | 1 | 2,216 |
1 Refer to the cash flow statement under cash flows from investing activities section for the purchase of property, plant and equipment during the year of $205 million
2 Disposals for property, plant and equipment during the year of $68 million in the cash flow statement would include the gains and losses incurred as part of other operating income (Note 6) on disposal of assets during the period and the net book value disposed
3 Aviation business have been moved to held for sale, See Note 20 Assets held for sale and associated liabilities
31.12.22 | ||||||
Premises$million | Equipment$million | Operatinglease assets$million | Leasedpremisesassets$million | Leaseequipmentassets$million | Total$million | |
Cost or valuation | ||||||
At 1 January | 1,980 | 901 | 4,248 | 1,854 | 33 | 9,016 |
Exchange translation differences | (90) | (65) | - | (111) | (4) | (270) |
Additions1 | 87 | 124 | 624 | 339 | 1 | 1,175 |
Disposals and fully depreciated assetswritten off2 | (142) | (102) | (452) | (425) | (1) | (1,122) |
Transfers to assets held for sale | (62) | (18) | - | (5) | - | (85) |
As at 31 December | 1,773 | 840 | 4,420 | 1,652 | 29 | 8,714 |
Depreciation | ||||||
Accumulated at 1 January | 795 | 611 | 1,155 | 819 | 20 | 3,400 |
Exchange translation differences | (39) | (39) | - | (33) | (3) | (114) |
Charge for the year | 76 | 116 | 202 | 250 | 7 | 651 |
Impairment charge | 1 | - | 40 | 9 | - | 50 |
Attributable to assets sold, transferred or written off2 | (125) | (101) | (212) | (313) | - | (751) |
Transfers to assets held for sale | (30) | (12) | - | (2) | - | (44) |
Accumulated at 31 December | 678 | 575 | 1,185 | 730 | 24 | 3,192 |
Net book amount at 31 December | 1,095 | 265 | 3,235 | 922 | 5 | 5,522 |
1 Refer to the cash flow statement (FY22) under cash flows from investing activities section for the purchase of property, plant and equipment during the year of $835 million
2 Disposals for property, plant and equipment during the year of $343 million in the cash flow statement (FY22) would include the gains and losses incurred as part of other operating income (FY22 Note 6) on disposal of assets during the year and the net book value disposed
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18. Other assets
Other assets include: | 30.06.23$million | 31.12.22$million |
Financial assets held at amortized cost (Note 13): | ||
Hong Kong SAR Government certificates of indebtedness (Note 21)¹ | 6,783 | 7,106 |
Cash collateral | 9,304 | 12,515 |
Acceptances and endorsements | 4,700 | 5,264 |
Unsettled trades and other financial assets | 24,580 | 14,410 |
45,367 | 39,295 | |
Non-financial assets: | ||
Commodities and emissions certificates² | 8,209 | 10,598 |
Other assets | 375 | 490 |
53,951 | 50,383 |
1 The Hong Kong SAR Government certificates of indebtedness are subordinated to the claims of other parties in respect of bank notes issued
2 Commodities and emissions certificates are carried at fair value less costs to sell, $2.4 billion (31 December 2022: $6 billion) are classified as Level 1 and $5.8 billion are classified as Level 2 (31 December 2022: $4.6 billion).
19. Investment in associates and joint ventures
Share of profit from investment in associates and joint ventures comprises:
6 months ended 30.06.23$million | 6 months ended 30.06.22$million | |
Loss from investment in joint ventures | (7) | (3) |
Profit from investment in associates | 109 | 156 |
Total | 102 | 153 |
Interests in associates and joint ventures | 30.06.23$million | 31.12.22$million |
As at 1 January | 1,631 | 2,147 |
Exchange translation difference | (27) | (232) |
Additions | 40 | 26 |
Share of profits | 102 | 156 |
Dividend received | - | (58) |
Disposals | - | (1) |
Impairment¹ | (1) | (336) |
Share of FVOCI and Other reserves | (11) | (79) |
Other movements² | - | 8 |
Transfer to held for sale assets | - | - |
As at 30 June / 31 December | 1,734 | 1,631 |
1 H123 the impairment related to group's investment in its associate Fintech. FY22 Other impairment mainly relates to the Group's investment in its associate China Bohai Bank (Bohai)
2 FY22 Movement related to CurrencyFair
The Group's principal associate are:
Associate | Nature of activities | Main areasof operation | Group interest in ordinary share capital% |
China Bohai Bank | Banking | China | 16.26 |
CurrencyFair Limited | Banking | Ireland | 43.42 |
The Group's ownership percentage in China Bohai Bank is 16.26%.
The Group's investment in China Bohai Bank is less than 20 per cent but it is considered to be an associate because of the significant influence the Group is able to exercise over the management and financial and operating polices. This influence is primarily through board representation and the provision of technical expertise to Bohai. The Group applies the equity method of accounting for investments in associates.
For the period ended 30 June 2023, the Group recognised Bohai's results from 1 October 2022 through 31 March 2023 (six months of earnings). Bohai publishes their results after the Group. As it is impracticable for Bohai to prepare financial statements earlier for use of the Group, the Group recognises its share of Bohai's earnings on a three-month lag basis.
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There have been no material events after 31 March 2023 which would require adjustments in respect of the share of Bohai's profits and movements in OCI recognised by the Group for the period ended on 30 June 2023.
If the Group did not have significant influence in Bohai, the investment would be carried at fair value rather than the current carrying value.
Impairment testing
At 30 June 2023, the listed equity value of Bohai is below the carrying amount of the Group's investment in associate. As a result, the Group assessed the carrying value of its investment in Bohai for impairment and concluded that no impairment was required at 30 June 2023 ($309 million impairment in 2022). The revised carrying value of the Group's investment in Bohai of $1,499 million (2022: $1,729 million) represents the higher of the value in use and fair value less costs to sell. The financial forecasts used for the VIU calculation reflect the current economic conditions. The increase (compared to 2022) in the recoverable amount of Bohai is primarily a result of the recognition of the Group's share of Bohai's profits and impact of FX translation.
Bohai | 30.06.23$million | 31.12.22$million |
VIU | 1,499 | 1,421 |
Carrying amount1 | 1,499 | 1,421 |
Market value2 | 446 | 685 |
1 The Group's 16.26% share in the net assets less other equity instruments which the Group does not hold. The carrying amounts in 2022 and 2023 are net of cumulative impairment of $609 million taken in 2022 and 2021
2 Number of shares held by the Group multiplied by the quoted price at period end
Basis of recoverable amount
The impairment test was performed by comparing the recoverable amount of Bohai, determined as the higher of VIU and fair value less costs to sell, with its carrying amount.
The value in use ('VIU') is calculated using a dividend discount model ('DDM'), which estimates the distributable future cashflows to the equity holders, after adjusting for the regulatory capital requirements, for a 5-year period, after which a terminal value ('TV') is calculated based on the 'Gordon Growth' model. The key assumptions in the VIU are as follows:
• Short to medium term projections are based on management's best estimates of future profits available to ordinary shareholders and have been determined with reference to the latest published financial results and historical performance of Bohai;
• The projections use publicly available information and include normalised performance over the forecast period, inclusive of: (i) assets growth assumptions based on China GDP; (ii) ECL assumptions using Bohai historical ECL, based on the proportion of credit losses to loans and advances to customers. This was further adjusted to reflect the prevailing Chinese market challenges and uncertainties as a basis; (iii) Net Interest Margin (NIM) increases from 2024 with reference to third party market interest rate forecasts in China; and (iv) Effective Tax Rate (ETR) based on the latest Bohai historical financial results for the short term projection, updated, as per management best estimate, for the medium and long term to a more conservative view, to reflect any future change in Bohai's assets mix;
• The discount rate applied to these cash flows was estimated with reference to transaction and broker data in the local Chinese market, cross checked to the capital asset pricing model (CAPM), which includes a long term risk-free rate, beta and company risk premium assumptions for Bohai;
• A long term growth rate for China is used to extrapolate the expected short to medium term earnings to perpetuity to derive a terminal value; and
• Capital haircut is taken in order to estimate Bohai's target regulatory capital requirements over the forecast period. This haircut takes into account movements in risk weighted assets (RWA) projected based on the historical proportion of RWA to total assets and the total capital required, including required retained earnings over time to meet the target capital ratios.
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The key assumptions used in the VIU calculation:
30.06.23per cent | 31.12.22per cent | |
Pre-tax discount rate | 14.77 | 13.03 |
Forecast profit long term growth rate | 3.99 | 4.00 |
Total assets growth rate | 3.99 | N/A1 |
RWA as percentage of total assets | 64.00 | N/A1 |
Net interest margin | 1.50 - 1.77 | 1.50-1.84 |
Expected credit losses as a percentage of customer loans | 1.02 | 0.90-1.45 |
Effective tax rate | 6.20 - 16.00 | 16.00 |
Core CET1 ratio2 | 8.00 | 7.50 |
1 More granular balance sheet and RWA assumptions were included in the VIU calculation from 30 June 2023
2 At 31 March 2023 Bohai's Core CET 1 ratio was 8.26% (8.06% at 31 December 2022). Minimum Core CET 1 requirement is 5.0% (7.50% including buffers) as per local regulation
The sensitivities disclosed below are for changes to the discount rate, normalised profits and RWA assumptions of Bohai. All these sensitivity analysis assume a CET1 capital requirement of 8.00%. The GDP growth assumptions affect the forecast profits over the short to medium term and in the terminal period, and sensitivities are already disclosed, thus a separate sensitivity has not yet been included for this input.
Carrying amountPre impairment$million | Base Case | Sensitivities - 30.06.23 | |||||||||||||||
VIU$million | Headroom $million | Pre tax discount rate | GDP | Discount rate | Forecast profit1 | RWA | Combined | Combined | |||||||||
RWA -10% | RWA +10% | ||||||||||||||||
+1% | -1% | +10% | -10% | +10% | -10% | CF -10% | CF +10% | ||||||||||
Impairment $million | Impairment $million | Impairment $million | Impairment $million | Impairment $million | Impairment $million | Impairment $million | Impairment $million | ||||||||||
1,499 | 1,499 | - | 14.77% | 3.99% | (191) | 255 | 247 | (248) | (201) | 200 | (48) | 47 | |||||
1 Results include changes to NIM and additional ECL overlay assumptions, which are not necessarily linear
The following table sets out the summarised financial statements of China Bohai Bank prior to the Group's share of the associates being applied:
31.03.23$million | 31.03.22$million | |
Total assets | 237,604 | 240,876 |
Total liabilities | 221,897 | 224,212 |
Operating income1 | 1,942 | 1,954 |
Net profit1 | 638 | 963 |
Other comprehensive income1 | (68) | (483) |
1 This represents six months of earnings (1 October to 31 March)
20. Assets held for sale and associated liabilities
On 11 January 2023 the Group announced its intention to explore alternatives for the future ownership of its aviation finance loan and lease businesses within the CCIB business segment to enable a new investor to drive the next phase of growth in the business while the Group continues to focus on its commitment to improve shareholder returns and deliver on its 2024 targets. A commitment to sell the business to a third party was made during 1Q 2023. During 2Q 2023 a decision was made to sell the loan and lease businesses separately and it is anticipated the separate sales will be completed before the end of 2023. Consequently, assets of $3.3 billion related to aircraft held under operating leases, $2.2 billion of Aviation loans, the Group's equity share of $37 million in the SDH Wings Leasing International Limited Joint Venture (incorporated in Ireland) reclassified to 'Assets classified as held for sale' with no gain or loss on remeasurement. In addition, $292 million of liabilities were reclassified to 'Liabilities classified as held for sale'. Subsequently, it was determined that $1.2 billion of Aviation loans would no longer form part of the sale for commercial reasons, reducing the balance of Aviation loans classified within 'Assets classified as held for sale' to $909 million.
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Assets classified as held for sale
The financial assets reported below are classified under Level 1 nil million (31 December 2022: $345 million), Level 2 $1,891 million (31 December 2022: $946 million) and Level 3 $592 million (31 December 2022: $100 million).
30.06.23$million | 31.12.22$million | |
Financial assets held at fair value through profit or loss | 39 | 3 |
Equity shares | 39 | 2 |
Derivative financial instruments - Assets | - | 1 |
Financial assets held at amortised cost | 2,444 | 1,388 |
Cash and balances at central banks | 594 | 423 |
Loans and advances to banks | 238 | 81 |
Loans and advances to customers | 1,310 | 508 |
Debt securities held at amortised cost | 302 | 376 |
Goodwill and intangible assets | 25 | 4 |
Property, plant and equipment | 3,381 | 174 |
Aircrafts | 3,309 | - |
Vessels | 43 | 133 |
Others | 29 | 41 |
Other assets | 155 | 56 |
6,044 | 1,625 |
Disposal of Property, Plant and equipment classified under assets held for sale during 30 June 2023 was $136 million (31 December 2022: $79 million).
Liabilities classified as held for sale
The financial liabilities reported below are classified under Level 1 nil million (31 December 2022: $402 million) and Level 2 $1,194 million (31 December 2022: $833 million).
30.06.23$million | 31.12.22$million | |
Financial liabilities held at fair value through profit or loss | - | 5 |
Derivative financial instruments | - | 5 |
Financial liabilities held at amortised cost | 1,194 | 1,230 |
Deposits by banks | 15 | 17 |
Customer accounts | 1,179 | 1,213 |
Other liabilities | 354 | 64 |
Provisions for liabilities and charges | 2 | 8 |
1,550 | 1,307 |
21. Other liabilities
30.06.23$million | 31.12.22$million | |
Financial liabilities held at amortised cost (Note 13) | ||
Notes in circulation1 | 6,783 | 7,106 |
Acceptances and endorsements | 4,700 | 5,264 |
Cash collateral | 9,126 | 9,206 |
Property leases | 1,020 | 1,029 |
Equipment leases | 7 | 8 |
Unsettled trades and other financial liabilities2 | 28,322 | 20,302 |
49,958 | 42,915 | |
Non-financial liabilities | ||
Cash-settled share-based payments | 80 | 81 |
Other liabilities | 412 | 531 |
50,450 | 43,527 |
1 Hong Kong currency notes in circulation of $6,783 million (31 December 2022: $7,106 million) that are secured by the Government of Hong Kong SAR certificate of indebtedness of the same amount in Other assets (Note 18)
2 Other financial liabilities include the present value of lease liabilities, as required by IFRS 16 from 1 January 2019.
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22. Contingent liabilities and commitments
The table below shows the contract or underlying principal amounts of unmatured off-balance sheet transactions at the balance sheet date. The contract or underlying principal amounts indicate the volume of business outstanding and do not represent amounts at risk.
30.06.23$million | 31.12.22$million | |
Financial guarantees and trade credits | ||
Financial guarantees, trade credits and irrevocable letters of credit | 68,403 | 60,410 |
68,403 | 60,410 | |
Commitments | ||
Undrawn formal standby facilities, credit lines and other commitments to lend | ||
One year and over | 73,214 | 69,597 |
Less than one year | 32,563 | 31,688 |
Unconditionally cancellable | 68,432 | 67,383 |
174,209 | 168,668 | |
Capital Commitments | ||
Contracted capital expenditure approved by the directors but not provided for in these accounts1 | 71 | 257 |
1 Of which the Group has commitments totalling $53 million to purchase aircraft for delivery in 2023 (31 December 2022: $209 million). Upon delivery, the aircraft will be part of the Assets classified as held for sale in Note 20. Pre-delivery payments of $10 million (31 December 2022: $40 million) have been made in respect of these commitments
As set out in Note 23, the Group has contingent liabilities in respect of certain legal and regulatory matters for which it is not practicable to estimate the financial impact as there are many factors that may affect the range of possible outcomes.
23. Legal and regulatory matters
The Group receives legal claims against it in a number of jurisdictions and is subject to regulatory and enforcement investigations and proceedings from time to time. Apart from the matters described below, the Group currently considers none of the ongoing claims, investigations or proceedings to be individually material. However, in light of the uncertainties involved in such matters there can be no assurance that the outcome of a particular matter or matters currently not considered to be material may not ultimately be material to the Group's results in a particular reporting period depending on, among other things, the amount of the loss resulting from the matter(s) and the results otherwise reported for such period.
Since 2014, the Group has been named as a defendant in a series of lawsuits that have been filed in the United States District Courts for the Southern and Eastern Districts of New York against a number of banks (including Standard Chartered Bank or its affiliates) on behalf of plaintiffs who are, or are relatives of, victims of attacks in Iraq and Afghanistan. The plaintiffs in each of these lawsuits have alleged that the defendant banks aided and abetted the unlawful conduct of parties with connections to terrorist organisations in breach of the United States Anti-Terrorism Act. None of these lawsuits specify the amount of damages claimed. The Group continues to defend these lawsuits.
In January 2020, a shareholder derivative complaint was filed by the City of Philadelphia in New York State Court against 45 current and former directors and senior officers of the Group. It is alleged that the individuals breached their duties to the Group and caused a waste of corporate assets by permitting the conduct that gave rise to the costs and losses to the Group related to legacy conduct and control issues. In March 2021, an amended complaint was served in which SCB and seven individuals were removed from the case. Standard Chartered PLC and Standard Chartered Holdings Limited remained as named "nominal defendants" in the complaint. In May 2021, Standard Chartered PLC filed a motion to dismiss the complaint. In February 2022, the New York State Court ruled in favour of Standard Chartered PLC's motion to dismiss the complaint. The plaintiffs are pursuing an appeal against the February 2022 ruling. A hearing date for the plaintiffs' appeal is awaited.
Since October 2020, four lawsuits have been filed in the English High Court against Standard Chartered PLC on behalf of more than 200 shareholders in relation to alleged untrue and/or misleading statements and/or omissions in information published by Standard Chartered PLC in its rights issue prospectuses of 2008, 2010 and 2015 and/or public statements regarding the Group's historic sanctions, money laundering and financial crime compliance issues. These lawsuits have been brought under sections 90 and 90A of the Financial Services and Markets Act 2000. These lawsuits are at an early procedural stage.
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Bernard Madoff's 2008 confession to running a Ponzi scheme through Bernard L. Madoff Investment Securities LLC (BMIS) gave rise to a number of lawsuits against the Group. BMIS and the Fairfield funds (which invested in BMIS) are in bankruptcy and liquidation, respectively. Between 2010 and 2012, five lawsuits were brought against the Group by the BMIS bankruptcy trustee and the Fairfield funds' liquidators, in each case seeking to recover funds paid to the Group's clients pursuant to redemption requests made prior to BMIS' bankruptcy filing. The total amount sought in these cases exceeds USD 300 million, excluding any pre-judgment interest that may be awarded. The four lawsuits commenced by the Fairfield funds' liquidators have been dismissed and the appeals of those dismissals by the funds' liquidators are ongoing.
The Group has concluded that the threshold for recording provisions pursuant to IAS 37 Provisions, Contingent Liabilities and Contingent Assets is not met with respect to the above matters; however, the outcomes of these lawsuits are inherently uncertain and difficult to predict.
24. Subordinated liabilities and other borrowed funds
30.06.23 | ||||
USD$million | GBP$million | EUR$million | Total$million | |
Fixed rate subordinated debt | 8,366 | 844 | 2,494 | 11,704 |
Floating rate subordinated debt | 161 | - | - | 161 |
Total | 8,527 | 844 | 2,494 | 11,865 |
31.12.22 | ||||
USD$million | GBP$million | EUR$million | Total$million | |
Fixed rate subordinated debt | 10,372 | 822 | 2,360 | 13,554 |
Floating rate subordinated debt | 161 | - | - | 161 |
Total | 10,533 | 822 | 2,360 | 13,715 |
Redemptions and repurchases during the year
On 11 January 2023, Standard Chartered PLC exercised its rights to redeem USD 2 billion 2.33 per cent subordinated debt 2023.
Issuance during the year
There are no issuance during the period.
25. Share capital, other equity instruments and reserves
Number ofordinary sharesmillions | Ordinaryshare capital1$million | OrdinaryShare premium$million | Preference Sharepremium2$million | Total share capital and share premium$million | Other equity instruments$million | |
At 1 January 2022 | 3,079 | 1,539 | 3,989 | 1,494 | 7,022 | 6,254 |
Cancellation of shares including share buy-back | (111) | (56) | - | - | (56) | - |
Additional Tier 1 equity redemption | - | - | - | - | - | (990) |
At 30 June 2022 | 2,968 | 1,483 | 3,989 | 1,494 | 6,966 | 5,264 |
Cancellation of shares including share buy-back | (73) | (36) | - | - | (36) | - |
Additional Tier 1 equity issuance | - | - | - | - | - | 1,240 |
At 31 December 2022 | 2,895 | 1,447 | 3,989 | 1,494 | 6,930 | 6,504 |
Cancellation of shares including share buy-back | (94) | (47) | - | - | (47) | - |
Additional Tier 1 redemption | - | - | - | - | - | (992) |
At 30 June 2023 | 2,801 | 1,400 | 3,989 | 1,494 | 6,883 | 5,512 |
1 Issued and fully paid ordinary shares of 50 cents each
2 Includes preference share capital of $75,000
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Share buy-back
On 16 February 2023, the Group announced the buy-back programme for a share buy-back of its ordinary shares of $0.50 each. As at H1 2023 the buyback is ongoing, but the Nominal value of share purchases was $47 million, and the total consideration paid was $732 million and a further $268 million relating to irrevocable obligation to buy back shares. The total number of shares purchased was 93,894,706, representing 3.24% per cent of the ordinary shares in issue. The nominal value of the shares was transferred from the share capital to the capital redemption reserve account. The shares were purchased by Standard Chartered PLC on various exchanges not including the Hong Kong Stock Exchange, by private arrangement.
See footnotes 8 of the Statement of changes in Equity.
Number ofordinary shares | Highestprice paid£ | Lowestprice paid£ | Averageprice paidper share£ | Aggregateprice paid£ | Aggregateprice paid$ | |
February 2023 | 9,522,684 | 7.994 | 7.416 | 7.77508 | 74,039,628 | 89,017,672 |
March 2023 | 48,672,024 | 7.946 | 5.790 | 7.07885 | 344,541,860 | 416,300,544 |
April 2023 | 9,521,811 | 6.582 | 6.106 | 6.30837 | 60,067,118 | 74,798,622 |
May 2023 | 10,662,964 | 6.660 | 5.928 | 6.28592 | 67,026,502 | 83,626,929 |
June 2023 | 15,515,223 | 6.922 | 6.360 | 6.70601 | 104,045,286 | 131,601,470 |
Ordinary share capital
In accordance with the Companies Act 2006 the Company does not have authorised share capital. The nominal value of each ordinary share is 50 cents.
During the period nil shares were issued under employee share plans.
Preference share capital
At 30 June 2023, the Company has 15,000 $5 non-cumulative redeemable preference shares in issue, with a premium of $99,995 making a paid up amount per preference share of $100,000. The preference shares are redeemable at the option of the Company and are classified in equity.
The available profits of the Company are distributed to the holders of the issued preference shares in priority to payments made to holders of the ordinary shares and in priority to, or pari passu with, any payments to the holders of any other class of shares in issue. On a winding up, the assets of the Company are applied to the holders of the preference shares in priority to any payment to the ordinary shareholders and in priority to, or pari passu with, the holders of any other shares in issue, for an amount equal to any dividends payable (on approval of the board) and the nominal value of the shares together with any premium as determined by the Board. The redeemable preference shares are redeemable at the paid up amount (which includes premium) at the option of the Company in accordance with the terms of the shares. The holders of the preference shares are not entitled to attend or vote at any general meeting except where any relevant dividend due is not paid in full or where a resolution is proposed varying the rights of the preference shares.
Other equity instruments
The table provides details of outstanding Fixed Rate Resetting Perpetual Subordinated Contingent Convertible AT1 securities issued by Standard Chartered PLC. All issuances are made for general business purposes and to increase the regulatory capital base of the Group.
Issuance Date | Nominal Value | Proceeds net ofissue costs | Interest Rate1 | Coupon payment dates2 | First reset date3 | Conversionprice perordinary share |
18-Aug-16 | USD 999 million | USD 990 million | 7.50% | 2 April, 2 October each year | 2-Apr-22 | USD 7.732 |
3-Jul-19 | SGD 750 million | USD 552 million | 5.38% | 3 April, 3 October each year | 3-Oct-24 | SGD 10.909 |
26-Jun-20 | USD 1,000 million | USD 992 million | 6.00% | 26 January, 26 July each year | 26-Jan-26 | USD 5.331 |
14-Jan-21 | USD 1,250 million | USD 1,239 million | 4.75% | 14 January, 14 July each year | 14-Jul-31 | USD 6.353 |
19-Aug-21 | USD 1,500 million | USD 1,489 million | 4.30% | 19 February, 19 August each year | 19-Aug-28 | USD 6.382 |
15-Aug-22 | USD 1,250 million | USD 1,239 million | 7.75% | 15 February, 15 August each year | 15-Feb-28 | USD 7.333 |
1 Interest rates for the period from (and including) the issue date to (but excluding) the first reset date
2 Interest payable semi-annually in arrears
3 Securities are resettable each date falling five years, or an integral multiple of five years, after the first reset date
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Standard Chartered PLC redeemed $1,000m Fixed Rate Resetting Perpetual Contingent Convertible Securities on its first optional redemption date of 2 April 2023.
The AT1 issuances above are primarily purchased by institutional investors.
The principal terms of the AT1 securities are described below:
• The securities are perpetual and redeemable, at the option of Standard Chartered PLC in whole but not in part, on the first interest reset date and each date falling five years after the first reset date
• The securities are also redeemable for certain regulatory or tax reasons on any date at 100 per cent of their principal amount together with any accrued but unpaid interest up to (but excluding) the date fixed for redemption. Any redemption is subject to Standard Chartered PLC giving notice to the relevant regulator and the regulator granting permission to redeem
• Interest payments on these securities will be accounted for as a dividend
• Interest on the securities is due and payable only at the sole and absolute discretion of Standard Chartered PLC, subject to certain additional restrictions set out in the terms and conditions. Accordingly, Standard Chartered PLC may at any time elect to cancel any interest payment (or part thereof) which would otherwise be payable on any interest payment date
• The securities convert into ordinary shares of Standard Chartered PLC, at a pre-determined price detailed in the table above, should the fully loaded Common Equity Tier 1 ratio of the Group fall below 7.0 per cent. Approximately 947 million ordinary shares would be required to satisfy the conversion of all the securities mentioned above
The securities rank behind the claims against Standard Chartered PLC of (a) unsubordinated creditors, (b) which are expressed to be subordinated to the claims of unsubordinated creditors of Standard Chartered PLC but not further or otherwise; or (c) which are, or are expressed to be, junior to the claims of other creditors of Standard Chartered PLC, whether subordinated or unsubordinated, other than claims which rank, or are expressed to rank, pari passu with, or junior to, the claims of holders of the AT1 securities in a winding-up occurring prior to the conversion trigger.
Reserves
The constituents of the reserves are summarised as follows:
• The capital reserve represents the exchange difference on redenomination of share capital and share premium from sterling to US dollars in 2001. The capital redemption reserve represents the nominal value of preference shares redeemed
• The amounts in the "Capital and Merger Reserve" represents the premium arising on shares issued using a cash box financing structure, which required the Company to create a merger reserve under section 612 of the Companies Act 2006. Shares were issued using this structure in 2005 and 2006 to assist in the funding of Korea ($1.9 billion) and Taiwan ($1.2 billion) acquisitions, in 2008, 2010 and 2015 for the shares issued by way of a rights issue, primarily for capital maintenance requirements and for the shares issued in 2009 by way of an accelerated book build, the proceeds of which were used in the ordinary course of business of the Group. The funding raised by the 2008, 2010 and 2015 rights issues and 2009 share issue was fully retained within the Company. Of the 2015 funding, $1.5 billion was used to subscribe to additional equity in Standard Chartered Bank, a wholly owned subsidiary of the Company. Apart from the Korea, Taiwan and Standard Chartered Bank funding, the merger reserve is considered realised and distributable.
• Own credit adjustment reserve represents the cumulative gains and losses on financial liabilities designated at fair value through profit or loss relating to own credit. Gains and losses on financial liabilities designated at fair value through profit or loss relating to own credit in the year have been taken through other comprehensive income into this reserve. On derecognition of applicable instruments the balance of any OCA will not be recycled to the income statement, but will be transferred within equity to retained earnings
• Fair value through other comprehensive income (FVOCI) debt reserve represents the unrealised fair value gains and losses in respect of financial assets classified as FVOCI, net of expected credit losses and taxation. Gains and losses are deferred in this reserve and are reclassified to the income statement when the underlying asset is sold, matures or becomes impaired.
• FVOCI equity reserve represents unrealised fair value gains and losses in respect of financial assets classified as FVOCI, net of taxation. Gains and losses are recorded in this reserve and never recycled to the income statement
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• Cash flow hedge reserve represents the effective portion of the gains and losses on derivatives that meet the criteria for these types of hedges. Gains and losses are deferred in this reserve and are reclassified to the income statement when the underlying hedged item affects profit and loss or when a forecast transaction is no longer expected to occur
• Translation reserve represents the cumulative foreign exchange gains and losses on translation of the net investment of the Group in foreign operations. Since 1 January 2004, gains and losses are deferred to this reserve and are reclassified to the income statement when the underlying foreign operation is disposed. Gains and losses arising from derivatives used as hedges of net investments are netted against the foreign exchange gains and losses on translation of the net investment of the foreign operations
• Retained earnings represents profits and other comprehensive income earned by the Group and Company in the current and prior periods, together with the after tax increase relating to equity-settled share options, less dividend distributions, own shares held (treasury shares) and share buy-backs
A substantial part of the Group's reserves is held in overseas subsidiary undertakings and branches, principally to support local operations or to comply with local regulations. The maintenance of local regulatory capital ratios could potentially restrict the amount of reserves which can be remitted. In addition, if these overseas reserves were to be remitted, further unprovided taxation liabilities might arise.
As at 30 June 2023, the distributable reserves of Standard Chartered PLC (the Company) were $15 billion (31 December 2022: $13 billion). These comprised retained earnings and $17 billion of the merger reserve account. Distribution of reserves is subject to maintaining minimum capital requirements.
Own shares
Computershare Trustees (Jersey) Limited is the trustee of the 2004 Employee Benefit Trust (2004 Trust) and Ocorian Trustees (Jersey) Limited is the trustee of the 1995 Employees' Share Ownership Plan Trust (1995 Trust). The 2004 Trust is used in conjunction with the Group's employee share schemes and other employee share-based payments (such as upfront shares and salary shares) and the 1995 Trust has historically been used for the delivery of other employee share-based payments (such as upfront shares and fixed pay allowances). Group companies fund these trusts from time to time to enable the trustees to acquire shares to satisfy these arrangements.
Except as disclosed, neither the Company nor any of its subsidiaries has bought, sold or redeemed any securities of the Company listed on The Stock Exchange of Hong Kong Limited during the period. Details of the shares purchased and held by the trusts are set out below.
1995 Trust | 2004 Trust | Total | |||||||
30.06.23 | 31.12.22 | 30.06.22 | 30.06.23 | 31.12.22 | 30.06.22 | 30.06.23 | 31.12.22 | 30.06.22 | |
Shares purchased during the period | - | - | - | - | 30,203,531 | - | - | 30,203,531 | - |
Market price of shares purchased ($million) | - | - | - | - | 218 | - | - | 218 | - |
Shares transferred between trusts | - | - | - | - | - | - | - | - | - |
Shares held at the end of the period | - | - | - | 3,541,529 | 27,525,624 | 479,591 | 3,541,529 | 27,525,624 | 479,591 |
Maximum number of shares held during the period | 27,525,624 | 27,976,046 | 22,459,399 | ||||||
Dividend waivers
The trustees of the 2004 Trust, which holds ordinary shares in Standard Chartered PLC in connection with the operation of its employee share plans, waive any dividend on the balance of ordinary shares that have not been allocated to employees, except for 0.01p per share.
26. Retirement benefit obligations
Retirement benefit obligations comprise:
30.06.23$million | 31.12.22$million | 30.06.22$million | |
Total market value of assets | 2,042 | 2,004 | 2,242 |
Present value of the plans liabilities | (2,152) | (2,132) | (2,362) |
Defined benefit plans obligation | (110) | (128) | (120) |
Defined contribution plans obligation | (16) | (18) | (21) |
Net obligation | (126) | (146) | (141) |
Page 116
Retirement benefit charge comprises:
6 months ended 30.06.23$million | 6 months ended 31.12.22$million | 6 months ended 30.06.22$million | |
The pension cost for defined benefit plans was: | |||
Current service cost1 | 23 | 25 | 28 |
Past service cost and curtailments | 9 | 3 | (1) |
Interest income on pension plan assets | (51) | (34) | (32) |
Interest on pension plan liabilities | 54 | 35 | 34 |
Total charge to profit before deduction of tax | 35 | 29 | 29 |
Losses on plan assets excluding interest income2 | 12 | 170 | 429 |
Gains on liabilities | (47) | (127) | (513) |
Total (gains)/losses recognised directly in statement of comprehensive income before tax | (35) | 43 | (84) |
Deferred taxation | 4 | (3) | 23 |
Total (gains)/losses after tax | (31) | 40 | (61) |
1 Includes administrative expenses paid out of plan assets of $ 1 million
2 The actual return on assets was a gain of $39 million
The Group operates over 60 defined benefit plans across its geographies, many of which are closed to new entrants who now join defined contribution arrangements. The aim of all these plans is, as part of the Group's commitment to financial wellbeing for employees, to give employees the opportunity to save appropriately for retirement in a way that is consistent with local regulations, taxation requirements and market conditions. The defined benefit plans expose the Group to currency risk, interest rate risk, investment risk and actuarial risks such as longevity risk.
Material holdings of government and corporate bonds partially hedge movements in the liabilities resulting from interest rate and inflation changes. Setting aside movements from other drivers such as currency fluctuation, the increases over 2023 in discount rates in the UK, which accounts for more than half of total liabilities, have led to lower liabilities. These have been partly offset by decreases in the value of assets held, but overall there has been a fall in the pension deficit reported. These movements are shown as actuarial gains and losses in the tables above.
The disclosures required under IAS 19 have been calculated by independent qualified actuaries based on the most recent full actuarial valuations updated, where necessary, to 30 June 2023.
27. Related party transactions
Directors and officers
As at 30 June 2023, Standard Chartered Bank had in place a charge over $67 million (31 December 2022: $89 million) of cash assets in favour of the independent trustee of its employer financed retirement benefit scheme.
There were no changes in the related party transactions described in the Annual Report 2022 that could have or have had a material effect on the financial position or performance of the Group in the period ended 30 June 2023. All related party transactions have taken place in the period were similar in nature to those disclosed in Annual Report 2022.
Associate and joint ventures
The following transactions with related parties are on an arm's length basis:
30.06.23$million | 31.12.22$million | |
Assets | ||
Loans and advances | - | 20 |
Other assets | 5 | - |
Derivative assets | 22 | 18 |
Total assets | 27 | 38 |
Liabilities | ||
Deposits | 788 | 610 |
Other Liabilities | 499 | 19 |
Total liabilities | 1,287 | 629 |
Loan commitments and other guarantees¹ | 103 | 164 |
1 The maximum loan commitments and other guarantees during the period were $103 million (31 December 2022: $164 million)
Page 117
28. Post balance sheet events
On 6 July 2023, Standard Chartered PLC issued $1 billion 6.187 per cent Fixed Rate Reset Notes due 2027, $1 billion
6.296 per cent Fixed Rate Reset Notes due 2034 and $500 million Floating Rate Notes due 2027.
On 14 July 2023 Standard Chartered (the Bank) and Access Bank Plc (Access) have entered into agreements for the sale of Standard Chartered's shareholding in its subsidiaries Standard Chartered Bank Angola S.A., Standard Chartered Bank Cameroon S.A., Standard Chartered Bank Gambia Limited, Standard Chartered Bank Sierra Leone Limited and its CPBB business in Standard Chartered Bank Tanzania Limited. Each transaction remains subject to the approval of the respective local regulators and the banking regulator in Nigeria. The Group does not expect the financial effect from this disposal to be material to its results.
A share buy-back for up to a maximum consideration of $1 billion has been declared by the directors after 30 June 2023. This will reduce the number of ordinary shares in issue by cancelling the repurchased shares.
The Board has recommended an interim ordinary dividend for the half year 2023 of 6 cents a share or $168 million.
29. Corporate governance
The directors confirm that, throughout the period, the Company has complied with the code provisions set out in the Corporate Governance Code contained in Appendix 14 of the Hong Kong Listing Rules. The directors also confirm that the announcement of these results has been reviewed by the Company's Audit Committee. The Company confirms that it has adopted a code of conduct regarding securities transactions by directors on terms no less exacting than the required standard set out in Appendix 10 of the Hong Kong Listing Rules and, that having made specific enquiry of all directors, the directors of the Company have complied with the required standards of the adopted code of conduct throughout the period. Details of the Group's Corporate Governance arrangements are set out in the Directors' Report within the 2022 Annual Report.
As previously announced, the following changes to the composition of the Board have taken place since 31 December 2022. Effective 1 January 2023, Shirish Apte became Chair of the Remuneration Committee and member of the Governance and Nomination Committee (GNC) and Dr Linda Yueh, CBE was appointed to the Board as an Independent Non-Executive Director (INED) and became a member of the Culture and Sustainability Committee (CSC) and the Remuneration Committee. On 31 January 2023, Christine Hodgson retired from the Board. On 3 May 2023, Jasmine Whitbread retired from the Board and Dr Linda Yueh, CBE was appointed Chair of the CSC and a member of the GNC. Biographies for each of the directors and a list of the committees' membership can be found at sc.com.
In compliance with Rule 13.51B(1) of the Hong Kong Listing Rules, the Company confirms that effective 1 April 2023, Jackie Hunt, INED, was appointed to the Board of Willis Towers Watson plc as an INED after retiring from Man Group plc on 28 March 2023 and from Rothesay Life plc on 30 April 2023. Carlson Tong, INED, was appointed to the board of Hong Kong Exchanges and Clearing Limited, listed on the Hong Kong Stock Exchange, as a government appointed INED on 26 April 2023.
30. Statutory accounts
The information in this Half Year Report is unaudited and does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. All references to statutory performance/results within this Half Year Report means amounts reported under UK-adopted IAS and EU IFRS as defined in Note 1 or in reference to the statutory accounts for the year ended 31 December 2022, unless otherwise stated. This document was approved by the Board on 28 July 2023. The statutory accounts for the year ended 31 December 2022 have been audited and delivered to the Registrar of Companies in England and Wales. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under sections 498(2) and 498(3) of the Companies Act 2006.
Page 118
31. Cash flow note
Adjustment for non-cash items and other adjustments included within income statement
30.06.23$million | 30.06.22$million | |
Amortisation of discounts and premiums of investment securities | (219) | 195 |
Interest expense on subordinated liabilities | 415 | 247 |
Interest expense on senior debt securities in issue | 959 | 283 |
Other non-cash items | (168) | 16 |
Pension costs for defined benefit schemes | 35 | 29 |
Share-based payment costs | 112 | 122 |
Impairment losses on loans and advances and other credit risk provisions | 161 | 263 |
Other impairment | 77 | 15 |
Gain on disposal of property, plant and equipment | (32) | (32) |
Loss/(gain) on disposal of FVOCI and AMCST financial assets | 105 | (14) |
Depreciation and amortisation | 561 | 592 |
Fair value changes taken to income statement | (357) | (199) |
Foreign Currency revaluation | (29) | (666) |
Net gain on derecognition of investment in associate | - | 2 |
Profit from associates and joint ventures | (102) | (153) |
Total | 1,518 | 700 |
Change in operating assets
30.06.23$million | 30.06.22$million | |
Decrease/(increase) in derivative financial instruments | 2,893 | (25,182) |
(Increase)/decrease in debt securities, treasury bills and equity shares held at fair value through profit or loss | (11,282) | 7,861 |
Net decrease in loans and advances to banks and customers | 13,316 | 5,139 |
Net increase in prepayments and accrued income | (205) | (244) |
Net increase in other assets | (6,783) | (11,859) |
Total | (2,061) | (24,285) |
Change in operating liabilities
30.06.23$million | 30.06.22$million | |
(Decrease)/increase in derivative financial instruments | (6,511) | 23,620 |
Increase/(decrease) in deposits from banks, customer accounts, debt securities in issue, Hong Kong notes in circulation and short positions | 23,238 | (14,783) |
Increase/(decrease) in accruals and deferred income | 437 | (353) |
Net increase in other liabilities | 9,302 | 17,558 |
Total | 26,466 | 26,042 |
Page 119
Disclosures
30.06.23$million | 30.06.22$million | |
Subordinated debt (including accrued interest): | ||
Opening balance | 13,929 | 16,885 |
Proceeds from the issue | - | 750 |
Interest paid | (300) | (310) |
Repayment | (2,000) | (1,048) |
Foreign exchange movements | 109 | (401) |
Fair value changes | 38 | (1,018) |
Accrued Interest and Others | 282 | 320 |
Closing balance | 12,058 | 15,178 |
Senior debt (including accrued interest): | ||
Opening balance | 32,288 | 29,904 |
Proceeds from the issue | 7,072 | 6,511 |
Interest paid | (561) | (487) |
Repayment | (2,715) | (3,618) |
Foreign exchange movements | (158) | (881) |
Fair value changes | (98) | (804) |
Accrued Interest and Others | 390 | 521 |
Closing balance | 36,218 | 31,146 |
Page 120
Other supplementary financial information
Supplementary financial information
Insured and uninsured deposits
SCB operates and provides services to customers across many countries and insured deposit is determined on the basis of limits enacted within local regulations
30.06.23 | 31.12.22 | |||
Bankdeposits$million | Customeraccounts$million | Bankdeposits$million | Customeraccounts$million | |
Insured deposits | 142 | 64,140 | 28 | 60,008 |
Current accounts | 9 | 15,755 | 8 | 16,373 |
Savings deposits | - | 29,387 | - | 26,973 |
Time deposits | 19 | 18,901 | 20 | 16,599 |
Other deposits | 114 | 97 | - | 63 |
Uninsured deposits | 40,656 | 465,651 | 36,795 | 460,221 |
Current accounts | 21,519 | 147,732 | 22,425 | 144,931 |
Savings deposits | - | 84,532 | - | 90,937 |
Time deposits | 8,436 | 187,017 | 6,870 | 176,090 |
Other deposits | 10,701 | 46,370 | 7,500 | 48,263 |
Total | 40,798 | 529,791 | 36,823 | 520,229 |
Classification of insured deposits is based on the local deposits insurance regulations existing in the jurisdictions in which the Group operates. The jurisdictions with the most significant levels customer deposits are Hong Kong, Korea and Singapore, which provide insurance for deposits up to HKD 500,000, KRW 50,000,000 and SGD 75,000, respectively, in each case based on the total relationship value.
UK and non-UK deposits
The following table summarises the split of Bank and Customer deposits into UK and Non-UK deposits for respective account lines based on the domicile or residence of the clients.
30.06.23 | 31.12.22 | |||
Bankdeposits$million | Customeraccounts$million | Bankdeposits$million | Customeraccounts$million | |
UK deposits | 2,782 | 29,706 | 4,163 | 38,557 |
Current accounts | 995 | 8,769 | 903 | 8,955 |
Savings deposits | - | 563 | - | 420 |
Time deposits | 246 | 5,611 | 1,004 | 6,760 |
Other deposits | 1,541 | 14,763 | 2,256 | 22,422 |
Non-UK deposits | 38,016 | 500,085 | 32,660 | 481,672 |
Current accounts | 20,532 | 154,719 | 21,530 | 152,349 |
Savings deposits | - | 113,356 | - | 117,490 |
Time deposits | 8,210 | 200,306 | 5,886 | 185,929 |
Other deposits | 9,274 | 31,704 | 5,244 | 25,904 |
Total | 40,798 | 529,791 | 36,823 | 520,229 |
Page 121
Contractual maturity of Loans, Investment securities and Deposits
30.06.23 | |||||||
Loans and advancesto banks$million | Loans and advances to customers$million | Investment securities - Treasuryand other eligible Bills$million | Investment securities -Debt securities$million | Investment securities -Equity shares$million | Bank deposits$million | Customer accounts$million | |
One year or less | 76,241 | 188,753 | 35,997 | 46,333 | - | 38,495 | 486,363 |
Between one and five years | 4,130 | 52,443 | 367 | 66,070 | - | 2,296 | 41,976 |
Between five and ten years | 415 | 17,532 | 1 | 20,363 | - | 3 | 1,390 |
Between ten years and fifteen years | 85 | 13,559 | - | 9,883 | - | - | 52 |
More than fifteen years and undated | 324 | 63,536 | - | 17,920 | 3,704 | 4 | 10 |
Total | 81,195 | 335,823 | 36,365 | 160,569 | 3,704 | 40,798 | 529,791 |
Total amortised cost and FVOCI exposures | 44,602 | 290,137 | |||||
Fixed interest rate exposures | 37,127 | 173,633 | |||||
Floating interest rate exposures | 7,475 | 116,504 | |||||
31.12.22 | |||||||
Loans and advances to banks$million | Loans and advances to customers$million | Investment securities - Treasuryand other eligible Bills$million | Investment securities - Debt securities$million | Investment securities - Equity shares$million | Bank deposits$million | Customer accounts$million | |
One year or less | 60,132 | 208,691 | 42,269 | 47,193 | - | 35,240 | 508,125 |
Between one and five years | 3,630 | 52,563 | 482 | 63,523 | - | 1,576 | 10,281 |
Between five and ten years | 411 | 18,067 | - | 20,078 | - | 7 | 694 |
Between ten years and fifteen years | 92 | 13,305 | - | 12,921 | - | - | 598 |
More than fifteen years and undated | 184 | 65,104 | - | 15,720 | 4,037 | - | 531 |
Total | 64,449 | 357,730 | 42,751 | 159,435 | 4,037 | 36,823 | 520,229 |
Total amortised cost and FVOCI exposures | 39,519 | 310,647 | |||||
Fixed interest rate exposures | 36,218 | 170,609 | |||||
Floating interest rate exposures | 3,301 | 140,038 | |||||
Maturity and yield of Debt securities, alternative tier one and other eligible bills held at amortised
One year or less | Between one andfive years | Between five andten years | More than ten years | Total | ||||||
$million | Yield% | $million | Yield% | $million | Yield% | $million | Yield% | $million | Yield% | |
Central and other government agencies | ||||||||||
- US | 1,569 | 1.45 | 6,470 | 1.48 | 7,548 | 1.57 | 4,271 | 3.91 | 19,858 | 2.03 |
- UK | 45 | 1.25 | 108 | 1.43 | - | - | 51 | 0.88 | 204 | 1.25 |
- Other | 4,353 | 2.44 | 11,884 | 2.64 | 2,245 | 2.88 | 6 | 4.32 | 18,488 | 2.63 |
Other debt securities | 2,827 | 5.90 | 2,830 | 4.84 | 2,285 | 5.72 | 11,896 | 4.85 | 19,838 | 5.10 |
As at 30 June 2023 | 8,794 | 3.37 | 21,292 | 2.58 | 12,078 | 2.60 | 16,224 | 4.59 | 58,388 | 3.26 |
One year or less | Between one andfive years | Between five andten years | More than ten years | Total | ||||||
$million | Yield% | $million | Yield% | $million | Yield% | $million | Yield% | $million | Yield% | |
Central and other government agencies | ||||||||||
- US | 2,208 | 1.58 | 5,437 | 1.41 | 6,317 | 1.32 | 4,498 | 3.47 | 18,460 | 1.90 |
- UK | - | - | 85 | 1.98 | 60 | 0.50 | 47 | 0.90 | 192 | 1.26 |
- Other | 3,599 | 2.71 | 9,659 | 1.98 | 3,541 | 2.24 | 44 | 4.00 | 16,843 | 2.19 |
Other debt securities | 4,752 | 4.53 | 2,869 | 5.07 | 1,454 | 4.09 | 15,144 | 3.55 | 24,219 | 3.96 |
As at 31 December 2022 | 10,559 | 3.29 | 18,050 | 2.30 | 11,372 | 1.96 | 19,733 | 3.53 | 59,714 | 2.82 |
Page 122
The maturity distributions are presented in the above table on the basis of residual contractual maturity dates. The weighted average yield for each range of maturities is calculated by dividing the annualised interest income for the year by the book amount of debt securities at that date.
Average balance sheets and yields
The following tables set out the average balances and yields for the Group's assets and liabilities for the periods ended 30 June 2023, 31 December 2022 and 30 June 2022. For the purpose of these tables, average balances have been determined on the basis of daily balances, except for certain categories, for which balances have been determined less frequently. The Group does not believe that the information presented in these tables would be significantly different had such balances been determined on a daily basis.
Average assets
Average assets | 6 months ended 30.06.23 | ||||
Averagenon-interestearning balance$million | Averageinterestearningbalance$million | Interestincome$million | Gross yield% | Gross yieldtotal balance% | |
Cash and balances at central banks | 10,799 | 63,057 | 1,211 | 3.87 | 3.31 |
Gross loans and advances to banks | 33,352 | 42,692 | 958 | 4.53 | 2.54 |
Gross loans and advances to customers | 57,325 | 305,444 | 7,504 | 4.95 | 4.17 |
Impairment provisions against loans and advances to banks and customers | - | (5,996) | - | - | - |
Investment securities - Treasury and Other Eligible Bills | 6,851 | 35,488 | 809 | 4.60 | 3.85 |
Investment securities - Debt Securities | 26,211 | 135,464 | 2,344 | 3.49 | 2.92 |
Investment securities - Equity Shares | 3,230 | - | - | - | - |
Property, plant and equipment and intangible assets | 9,278 | - | - | - | - |
Prepayments, accrued income and other assets | 125,751 | - | - | - | - |
Investment associates and joint ventures | 1,781 | - | - | - | - |
Total average assets | 274,578 | 576,149 | 12,826 | 4.49 | 3.04 |
Average assets | 6 months ended 31.12.22 | ||||
Averagenon-interestearning balance$million | Averageinterestearningbalance$million | Interestincome$million | Gross yield% | Gross yieldtotal balance% | |
Cash and balances at central banks | 15,814 | 53,421 | 619 | 2.34 | 1.80 |
Gross loans and advances to banks | 30,286 | 43,945 | 527 | 2.42 | 1.43 |
Gross loans and advances to customers | 60,000 | 308,454 | 6,141 | 4.01 | 3.36 |
Impairment provisions against loans and advances to banks and customers | - | (6,232) | - | - | - |
Investment securities - Treasury and Other Eligible Bills | 6,022 | 27,294 | 424 | 3.13 | 2.57 |
Investment securities - Debt Securities | 24,060 | 138,522 | 1,756 | 2.56 | 2.18 |
Investment securities - Equity Shares | 3,636 | - | - | - | - |
Property, plant and equipment and intangible assets | 8,913 | - | - | - | - |
Prepayments, accrued income and other assets | 154,164 | - | - | - | - |
Investment associates and joint ventures | 2,109 | - | - | - | - |
Total average assets | 305,004 | 565,404 | 9,467 | 3.38 | 2.19 |
Page 123
Average assets | 6 months ended 30.06.22 | ||||
Averagenon-interestearningbalance$million | Averageinterestearningbalance$million | Interestincome$million | Gross yield% | Gross yieldtotal balance% | |
Cash and balances at central banks | 23,650 | 55,603 | 146 | 0.53 | 0.37 |
Gross loans and advances to banks | 28,854 | 41,945 | 326 | 1.57 | 0.93 |
Gross loans and advances to customers | 62,985 | 305,280 | 4,027 | 2.66 | 2.21 |
Impairment provisions against loans and advances to banks and customers | - | (5,496) | - | - | - |
Investment securities - Treasury and Other Eligible Bills | 5,098 | 24,531 | 206 | 1.69 | 1.40 |
Investment securities - Debt Securities | 23,169 | 143,472 | 1,080 | 1.52 | 1.31 |
Investment securities - Equity Shares | 4,676 | - | - | - | - |
Property, plant and equipment and intangible assets | 8,727 | - | - | - | - |
Prepayments, accrued income and other assets | 130,842 | - | - | - | - |
Investment associates and joint ventures | 2,196 | - | - | - | - |
Total average assets | 290,197 | 565,335 | 5,785 | 2.06 | 1.36 |
Average liabilities
Average liabilities | 6 months ended 30.06.23 | ||||
Averagenon-interestbearingbalance$million | Averageinterestbearingbalance$million | Interestexpense$million | Rate paid% | Rate paidtotal balance% | |
Deposits by banks | 14,395 | 25,176 | 374 | 3.00 | 1.91 |
Customer accounts: | |||||
Current accounts | 43,861 | 130,405 | 1,705 | 2.64 | 1.97 |
Savings deposits | - | 112,506 | 892 | 1.60 | 1.60 |
Time deposits | 14,489 | 187,106 | 3,830 | 4.13 | 3.83 |
Other deposits | 49,348 | 2,978 | 62 | 4.20 | 0.24 |
Debt securities in issue | 10,546 | 66,201 | 1,538 | 4.68 | 4.04 |
Accruals, deferred income and other liabilities | 130,519 | 1,029 | 26 | 5.10 | 0.04 |
Subordinated liabilities and other borrowed funds | - | 12,148 | 415 | 6.89 | 6.89 |
Non-controlling interests | 320 | - | - | - | - |
Shareholders' funds | 49,700 | - | - | - | - |
313,178 | 537,549 | 8,842 | 3.32 | 1.04 | |
Adjustment for Financial Markets trading book funding costs | (822) | ||||
Financial guarantee fees on interest earning assets | 36 | ||||
Total average liabilities and shareholders' funds | 313,178 | 537,549 | 8,056 | 3.02 | 0.95 |
Page 124
Average liabilities | 6 months ended 31.12.22 | ||||
Averagenon-interestbearingbalance$million | Averageinterestbearingbalance$million | Interestexpense$million | Rate paid% | Rate paidtotal balance% | |
Deposits by banks | 15,805 | 25,321 | 341 | 2.72 | 1.67 |
Customer accounts: | |||||
Current accounts | 48,235 | 135,529 | 1,155 | 1.72 | 1.27 |
Savings deposits | - | 123,054 | 573 | 0.94 | 0.94 |
Time deposits | 12,312 | 160,419 | 2,191 | 2.75 | 2.56 |
Other deposits | 52,875 | 4,019 | 86 | 4.32 | 0.30 |
Debt securities in issue | 7,204 | 59,842 | 822 | 2.77 | 2.47 |
Accruals, deferred income and other liabilities | 159,818 | 1,004 | 21 | 4.22 | 0.03 |
Subordinated liabilities and other borrowed funds | - | 14,438 | 323 | 4.51 | 4.51 |
Non-controlling interests | 284 | - | - | - | - |
Shareholders' funds | 50,247 | - | - | - | - |
346,780 | 523,626 | 5,512 | 2.12 | 1.28 | |
Adjustment for Financial Markets trading book funding costs | (463) | ||||
Financial guarantee fees on interest earning assets | 80 | ||||
Total average liabilities and shareholders' funds | 346,780 | 523,626 | 5,129 | 1.98 | 1.19 |
Average liabilities | 6 months ended 30.06.22 | ||||
Averagenon-interestbearingbalance$million | Averageinterestbearingbalance$million | Interestexpense$million | Rate paid% | Rate paidtotal balance% | |
Deposits by banks | 18,293 | 29,193 | 92 | 0.64 | 0.39 |
Customer accounts: | |||||
Current accounts | 54,567 | 129,842 | 325 | 0.50 | 0.36 |
Savings deposits | - | 140,229 | 259 | 0.37 | 0.37 |
Time deposits | 10,848 | 143,679 | 830 | 1.16 | 1.08 |
Other deposits | 53,050 | 6,187 | 24 | 0.78 | 0.08 |
Debt securities in issue | 6,228 | 61,288 | 347 | 1.14 | 1.04 |
Accruals, deferred income and other liabilities | 132,958 | 1,127 | 23 | 4.12 | 0.03 |
Subordinated liabilities and other borrowed funds | - | 15,559 | 247 | 3.20 | 3.20 |
Non-controlling interests | 340 | - | - | - | - |
Shareholders' funds | 49,493 | - | - | - | - |
325,777 | 527,104 | 2,147 | 0.82 | 0.51 | |
Adjustment for Financial Markets trading book funding costs | (106) | ||||
Financial guarantee fees on interest earning assets | 47 | ||||
Total average liabilities and shareholders' funds | 325,777 | 527,104 | 2,088 | 0.80 | 0.49 |
Page 125
Net interest margin
6 months ended 30.06.23$million | 6 months ended 31.12.22$million | 6 months ended 30.06.22$million | |
Interest income (statutory) | 12,826 | 9,467 | 5,785 |
Average interest-earning assets | 576,149 | 565,403 | 565,335 |
Gross yield (%) | 4.49 | 3.38 | 2.06 |
Interest expense (statutory) | 8,842 | 5,512 | 2,147 |
Adjustment for Financial Markets trading book funding costs | (822) | (463) | (106) |
Financial guarantee fees on interest-earning assets | 36 | 80 | 47 |
Adjusted interest expense used to fund financial instruments held at fair value | 8,056 | 5,129 | 2,088 |
Average interest-bearing liabilities | 537,549 | 523,626 | 527,104 |
Rate paid (%) | 3.02 | 1.98 | 0.80 |
Net yield (%) | 1.47 | 1.40 | 1.26 |
Net interest income adjusted for Financial Markets trading book funding costs and Financial guarantee fees on interest-earning assets | 4,770 | 4,338 | 3,697 |
Net interest margin (%) | 1.67 | 1.52 | 1.32 |
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A. Our Fair Pay Charter
Our Fair Pay Charter, introduced in 2018, sets out the principles we use to make remuneration decisions across the Group that are fair, transparent and competitive in order to support us in embedding a performance oriented, inclusive and innovative culture and in delivering a differentiated employee experience. Our Fair Pay Charter principles are set out in the Group's 2022 Annual Report together with a summary of our progress in implementing these across the Group. Our fourth external Fair Pay Report, published in February 2023, provides further details and is available on our Group website.
B. Group share plans
Discretionary share plans
The 2021 Standard Chartered Share Plan (the '2021 Plan') was approved by shareholders in May 2021 and is the Group's main share plan, replacing the 2011 Standard Chartered Share Plan (the '2011 Plan') for new awards from June 2021. It is used to deliver various types of share awards to employees and former employees of the Group, including directors and former executive directors:
• Long Term Incentive Plan (LTIP) awards are granted with vesting subject to performance measures which have previously include: relative total shareholder return (TSR); return on tangible equity (RoTE) (with a Common Equity Tier 1 (CET1) underpin); and strategic measures. Each measure is assessed independently over a three-year period. LTIP awards have an individual conduct gateway requirement that results in the award lapsing if not met
• Deferred awards are used to deliver the deferred portion of variable remuneration, in line with both market practice and regulatory requirements. These awards vest in instalments on anniversaries of the award date specified at the time of grant. Deferred awards are not subject to any plan limit. This enables the Group to meet regulatory requirements relating to deferral levels, and is in line with market practice
• Buy-out awards are made outside of the annual performance process as replacement awards for new joiners who forfeit awards on leaving their previous employers, and vest in instalments on the anniversaries of the award date specified at the time of grant. This enables the Group to meet regulatory requirements relating to buy-outs, and is in line with market practice. In line with similar plans operated by our competitors, buy-out awards are not subject to an annual limit and do not have any performance measures
Under the 2021 Plan and 2011 Plan, no grant price is payable to receive an award. The remaining life of the 2021 Plan during which new awards can be made is eight years. The 2011 Plan has expired and no further awards can be granted under this plan.
All employee share plans
The Standard Chartered 2013 Sharesave Plan (2013 Sharesave Plan) expired in May 2023. As a result, no further invitations to save can be made under the 2013 Sharesave Plan.
The Standard Chartered 2023 Sharesave Plan was approved by shareholders in May 2023. Under the 2023 Sharesave Plan, employees may open a savings contract. Within a maturity period of six months after the third anniversary, employees may purchase ordinary shares in the Company at a discount of up to 20 per cent on the share price at the date of invitation (this is known as the 'option exercise price'). There are no performance measures attached to options granted under the 2023 Sharesave Plan and no grant price is payable to receive an option.
In some countries in which the Group operates, it is not possible to deliver shares under the 2023 Sharesave Plan, typically due to securities laws and regulatory restrictions. In these countries, where possible, the Group offers an equivalent cash-based plan to its employees.
Valuation of share awards
Details of the valuation models used in determining the fair values of share awards granted under the Group's share plans are detailed in the Group's 2022 Annual Report.
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Reconciliation of share award movements for the period to 30 June 2023
LTIP1 | Deferred/Buy-outawards1 | Sharesave | Weighted average Sharesave exercise price(£) | |
Outstanding on 1 January 2023 | 11,339,951 | 46,449,040 | 17,109,519 | 3.81 |
Granted2,3 | 2,140,739 | 21,288,282 | - | - |
Lapsed | (1,911,931) | (813,863) | (684,608) | 4.10 |
Vested / Exercised | (601,174) | (18,226,698) | (1,467,406) | 4.96 |
Outstanding on 30 June 2023 | 10,967,585 | 48,696,761 | 14,957,505 | 3.68 |
Total number of securities available for issue under the plan | 10,967,585 | 48,696,761 | 14,957,505 | |
Percentage of the issued shares this represents as of 30 June 2023 | 0.39 | 1.74 | 0.53 | 3.68 |
Exercisable as of 30 June 2023 | - | 861,088 | 48,088 | 3.91 |
Range of exercise prices (£) | - | - | 3.14 - 5.13 | |
Intrinsic value of vested but not exercised options ($ million) | 0.00 | 7.48 | 0.18 | |
Weighted average contractual remaining life (years) | 8.08 | 8.50 | 1.98 | |
Weighted average share price for awards exercised during the period (£) | 6.93 | 7.05 | 6.88 |
1. Employees do not contribute towards the cost of these awards, which are covered under the rules of the 2011 Standard Chartered Share Plan for grants prior to May 2021, and under the rules of the 2021 Standard Chartered Share Plan for grants from June 2021
2. 2,134,238 (LTIP) granted on 13 March 2023, 6,501 (LTIP) granted as a notional dividend on 1 March 2023; 20,828,385 (Deferred/Buy-out awards) granted on 13 March 2023; 121,314 (Deferred awards) granted as a notional dividend on 1 March 2023; 338,583 (Deferred/Buy-out awards) granted on 19 June 2023
3. No discretionary awards (LTIP or deferred/buy-out awards) have been granted in the form of options since June 2015. For historic awards granted as options and exercised in the period to 30 June 2023, the exercise price of deferred/restricted shares options was nil
4. All Sharesave awards are in the form of options. The exercise price of Sharesave options exercised was £4.23 for options granted in 2022, £3.67 for options granted in 2021, £3.14 for options granted in 2020 and £4.98 for options granted in 2019
5. No options were cancelled in the period
C. Group Chairman and independent non-executive directors' interests in ordinary shares as at 30 June 20231,2
Shares beneficiallyheld as at31 December 2022 | Shares beneficiallyheld as at30 June 2023 | |
Chairman | ||
J Viñals | 45,000 | 45,000 |
Independent non-executive directors | ||
S M Apte | 2,000 | 2,000 |
D P Conner | 10,000 | 10,000 |
C Hodgson, CBE3 | 2,571 | - |
G Huey Evans, CBE | 2,615 | 2,615 |
J Hunt | 2,000 | 2,000 |
R A Lawther, CBE | 2,000 | 2,000 |
M Ramos | 2,000 | 2,000 |
P G Rivett | 2,128 | 2,128 |
D Tang | 2,000 | 2,000 |
C Tong | 2,000 | 2,000 |
J M Whitbread4 | 3,615 | - |
L Yueh5 | - | 2,000 |
1. Independent non-executive directors are required to hold shares with a nominal value of $1,000. All the directors have met this requirement
2. The beneficial interests of directors and their related parties in the ordinary shares of the Company are set out above. The directors do not have any non-beneficial interests in the Company's shares. None of the directors used ordinary shares as collateral for any loans. No director had either i) an interest in the Company's preference shares or loan stocks of any subsidiary or associated undertaking of the Group or ii) any corporate interests in the Company's ordinary shares. All figures as at 30 June 2023.
3. Christine Hodgson retired from the Board on 31 January 2023
4. Jasmine Whitbread retired from the Board on 3 May 2023
5. Linda Yueh was appointed to the Board on 1 January 2023
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D. Executive directors' interests in ordinary shares as at 30 June 2023
Scheme interests awarded, exercised and lapsed during the period
Employees, including executive directors, are not permitted to engage in any personal investment strategies with regards to their Company shares, including hedging against the share price of Company shares. The main features of the outstanding shares and awards are summarised below:
Award | Performance measures | Performance outcome | Accrues notional dividends?1 | Tranche splits |
2016-18 | 33% RoE 33% TSR 33% Strategic | 27% | Yes | Tranche 1: 50% Tranches 2-5: 12.5% |
2017-19 | 38% | 5 equal tranches | ||
2018-20 | 26% | No | ||
2019-21 | 33% RoTE 33% TSR 33% Strategic | 23% | ||
2020-22 | 36.8% | |||
2021-23 | 30% RoTE 30% TSR 15% Sustainability 25% Strategic | To be assessed at the end of 2023 | ||
2022-24 | To be assessed at the end of 2024 | |||
2023-25 | To be assessed at the end of 2025 |
1. 2016-18 and 2017-19 LTIP awards may receive dividend equivalent shares based on dividends declared between grant and vest. From 1 January 2017 remuneration regulations for European banks prohibited the award of dividend equivalent shares. Therefore, the number of shares awarded in respect of the 2018-20, 2019-21, 2020-22, 2021-23, 2022-24 and 2023-25 LTIP awards took into account the lack of dividend equivalents (calculated by reference to market consensus dividend yield) such that the overall value of the award was maintained
The following table shows the changes in share interests.
Changes in interests from 1 January to 30 June 2023 | ||||||||||
Date of grant | Share award price (£) | As at1 January | Awarded1 | Dividends awarded2 | Vested/exercised3,4 | Lapsed | As at30 June | Performanceperiod end | Vesting date | |
B Winters5 | ||||||||||
2016-18 LTIP | 4 May 2016 | 5.560 | 33,507 | - | 3,292 | 36,799 | - | - | 11 Mar 2019 | 4 May 2023 |
2017-19 LTIP | 13 Mar 2017 | 7.450 | 45,049 | - | 4,421 | 49,470 | - | - | 13 Mar 2020 | 13 Mar 2023 |
45,049 | - | - | - | - | 45,049 | 13 Mar 2024 | ||||
2018-20 LTIP | 9 Mar 2018 | 7.782 | 28,178 | - | - | 28,178 | - | - | 9 Mar 2021 | 9 Mar 2023 |
28,178 | - | - | - | - | 28,178 | 9 Mar 2024 | ||||
28,179 | - | - | - | - | 28,179 | 9 Mar 2025 | ||||
2019-21 LTIP | 11 Mar 2019 | 6.105 | 30,604 | - | - | 30,604 | - | - | 11 Mar 2022 | 11 Mar 2023 |
30,604 | - | - | - | - | 30,604 | 11 Mar 2024 | ||||
30,604 | - | - | - | - | 30,604 | 11 Mar 2025 | ||||
30,605 | - | - | - | - | 30,605 | 11 Mar 2026 | ||||
2020-22 LTIP | 9 Mar 2020 | 5.196 | 161,095 | - | - | 59,282 | 101,813 | - | 9 Mar 2023 | 9 Mar 2023 |
161,095 | - | - | - | 101,813 | 59,282 | 9 Mar 2024 | ||||
161,095 | - | - | - | 101,813 | 59,282 | 9 Mar 2025 | ||||
161,095 | - | - | - | 101,813 | 59,282 | 9 Mar 2026 | ||||
161,095 | - | - | - | 101,813 | 59,282 | 9 Mar 2027 | ||||
2021-23 LTIP | 15 Mar 2021 | 4.901 | 150,621 | - | - | - | - | 150,621 | 15 Mar 2024 | 15 Mar 2024 |
150,621 | - | - | - | - | 150,621 | 15 Mar 2025 | ||||
150,621 | - | - | - | - | 150,621 | 15 Mar 2026 | ||||
150,621 | - | - | - | - | 150,621 | 15 Mar 2027 | ||||
150,621 | - | - | - | - | 150,621 | 15 Mar 2028 | ||||
2022-24 LTIP | 14 Mar 2022 | 4.876 | 151,386 | - | - | - | - | 151,386 | 14 Mar 2025 | 14 Mar 2025 |
151,386 | - | - | - | - | 151,386 | 14 Mar 2026 | ||||
151,386 | - | - | - | - | 151,386 | 14 Mar 2027 | ||||
151,386 | - | - | - | - | 151,386 | 14 Mar 2028 | ||||
151,388 | - | - | - | - | 151,388 | 14 Mar 2029 | ||||
2023-25 LTIP | 13 Mar 2023 | 7.398 | - | 101,209 | - | - | - | 101,209 | 13 Mar 2026 | 13 Mar 2026 |
- | 101,209 | - | - | - | 101,209 | 13 Mar 2027 | ||||
- | 101,209 | - | - | - | 101,209 | 13 Mar 2028 | ||||
- | 101,209 | - | - | - | 101,209 | 13 Mar 2029 | ||||
- | 101,209 | - | - | - | 101,209 | 13 Mar 2030 | ||||
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Changes in interests from 1 January to 30 June 2023 | ||||||||||
Date of grant | Share award price (£) | As at1 January | Awarded1 | Dividends awarded2 | Vested/exercised3,4 | Lapsed | As at30 June | Performanceperiod end | Vesting date | |
A Halford4,5 | ||||||||||
2016-18 LTIP | 4 May 2016 | 5.560 | 20,009 | - | 1,966 | 21,975 | - | - | 11 Mar 2019 | 4 May 2023 |
2017-19 LTIP | 13 Mar 2017 | 7.450 | 27,888 | - | 2,740 | 30,628 | - | - | 13 Mar 2020 | 13 Mar 2023 |
27,890 | - | - | - | - | 27,890 | 13 Mar 2024 | ||||
2018-20 LTIP | 9 Mar 2018 | 7.782 | 17,448 | - | - | 17,448 | - | - | 9 Mar 2021 | 9 Mar 2023 |
17,448 | - | - | - | - | 17,448 | 9 Mar 2024 | ||||
17,448 | - | - | - | - | 17,448 | 9 Mar 2025 | ||||
2019-21 LTIP | 11 Mar 2019 | 6.105 | 19,571 | - | - | 19,571 | - | - | 11 Mar 2022 | 11 Mar 2023 |
19,571 | - | - | - | - | 19,571 | 11 Mar 2024 | ||||
19,571 | - | - | - | - | 19,571 | 11 Mar 2025 | ||||
19,572 | - | - | - | - | 19,572 | 11 Mar 2026 | ||||
2020-22 LTIP | 9 Mar 2020 | 5.196 | 99,976 | - | - | 36,791 | 63,185 | - | 9 Mar 2023 | 9 Mar 2023 |
99,976 | - | - | - | 63,185 | 36,791 | 9 Mar 2024 | ||||
99,976 | - | - | - | 63,185 | 36,791 | 9 Mar 2025 | ||||
99,976 | - | - | - | 63,185 | 36,791 | 9 Mar 2026 | ||||
99,977 | - | - | - | 63,186 | 36,791 | 9 Mar 2027 | ||||
2021-23 LTIP | 15 Mar 2021 | 4.901 | 96,283 | - | - | - | - | 96,283 | 15 Mar 2024 | 15 Mar 2024 |
96,283 | - | - | - | - | 96,283 | 15 Mar 2025 | ||||
96,283 | - | - | - | - | 96,283 | 15 Mar 2026 | ||||
96,283 | - | - | - | - | 96,283 | 15 Mar 2027 | ||||
96,283 | - | - | - | - | 96,283 | 15 Mar 2028 | ||||
2022-24 LTIP | 14 Mar 2022 | 4.876 | 96,772 | - | - | - | - | 96,772 | 14 Mar 2025 | 14 Mar 2025 |
96,772 | - | - | - | - | 96,772 | 14 Mar 2026 | ||||
96,772 | - | - | - | - | 96,772 | 14 Mar 2027 | ||||
96,772 | - | - | - | - | 96,772 | 14 Mar 2028 | ||||
96,773 | - | - | - | - | 96,773 | 14 Mar 2029 | ||||
2023-25 LTIP | 13 Mar 2023 | 7.398 | - | 64,700 | - | - | - | 64,700 | 13 Mar 2026 | 13 Mar 2026 |
- | 64,700 | - | - | - | 64,700 | 13 Mar 2027 | ||||
- | 64,700 | - | - | - | 64,700 | 13 Mar 2028 | ||||
- | 64,700 | - | - | - | 64,700 | 13 Mar 2029 | ||||
- | 64,702 | - | - | - | 64,702 | 13 Mar 2030 | ||||
2022 Sharesave6 | 4.230 | 2,127 | - | - | - | - | 2,127 | - | 1 Feb 2026 | |
1. For the 2023-25 LTIP awards granted to Bill Winters and Andy Halford on 13 March 2023, the values granted were: Bill Winters: £3.2 million; Andy Halford £2.1 million. The number of shares awarded in respect of the LTIP took into account the lack of dividend equivalents (calculated by reference to market consensus dividend yield) such that the overall value of the award was maintained. Performance measures apply to 2023-25 LTIP awards. The closing price on the day before grant was £7.398.
2. Dividend equivalent shares may be awarded on vesting for awards granted prior to 1 January 2018. On 31 March 2020, Standard Chartered announced that in response to the request from the PRA and as a consequence of the unprecedented challenges facing the world due to the COVID-19 pandemic, the Board decided to withdraw the recommendation to pay a final dividend for 2019. Dividend equivalent shares allocated to the 2016-18 and 2017-19 LTIP awards vesting in 2023 did not include any shares relating to the cancelled dividend.
3. Shares (before tax) were delivered to Bill Winters and Andy Halford from the vesting element of LTIP awards. The number of shares and the closing share price on the day before the shares were delivered were as follows:
• 2016-18 LTIP: 4 May 2023, 36,799 shares delivered to Bill Winters and 21,975 shares delivered to Andy Halford. Previous day closing share price: £6.114.
• 2017-19 LTIP: 13 March 2023, 49,470 shares delivered to Bill Winters and 30,628 shares delivered to Andy Halford. Previous day closing share price: £7.398.
• 2018-20 LTIP: 9 March 2023, 28,178 shares delivered to Bill Winters and 17,448 shares delivered to Andy Halford. Previous day closing share price: £7.874.
• 2019-21 LTIP: 13 March 2023, 30,604 shares delivered to Bill Winters and 19,571 shares delivered to Andy Halford. Previous day closing share price: £7.398.
• 2020-22 LTIP: 15 March 2023, 59,282 shares delivered to Bill Winters and 36,791 shares delivered to Andy Halford. Previous day closing share price: £6.968.
4. Andy Halford chose to participate in the 2022 Sharesave invitation. This unvested option was granted on 28 November 2022 under the 2013 Plan - to exercise this option, Andy has to pay an exercise price of £4.23 per share, which has been discounted by 20 per cent.
5. The unvested LTIP awards held by Bill Winters and Andy Halford are conditional rights. They do not have to pay towards these awards. Under these awards, shares are delivered on vesting or as soon as practicable thereafter.
6. The vesting date relates to the end of the savings contract and the start of the six month exercise window.
As at 30 June 2023, none of the directors had registered an interest or short position in the shares, underlying shares or debentures of the Company or any of its associated corporations that was required to be recorded pursuant to section 352 of the Securities and Futures Ordinance, or as otherwise notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers.
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Shareholdings and share interests
The following table summarises the executive directors' shareholdings and share interests.
| Shares held beneficially1,2,3 | Unvested share awards not subject to performance measures(net of tax)4,5 | Total shares counting towards shareholding requirement | Shareholding requirement | Salary3 | Value of shares counting towards shareholding requirement as a percentageof salary1 | Unvested share awards subject to performance measures(before tax) |
B Winters | 2,583,045 | 228,083 | 2,811,128 | 250% salary | £2,517,000 | 763% | 2,016,082 |
A Halford | 1,136,418 | 142,389 | 1,278,807 | 200% salary | £1,609,000 | 543% | 1,288,778 |
1. All figures are as of 30 June 2023 unless stated otherwise. The closing share price on 30 June 2023 was £6.83. No director had either: (i) an interest in Standard Chartered PLC's preference shares or loan stocks of any subsidiary or associated undertaking of the Group; or (ii) any corporate interested in Standard Chartered PLC's ordinary shares
2. The beneficial interests of directors and connected persons in the ordinary shares of the Company are set out above. The executive directors do not have any non-beneficial interest in the Company's shares. Neither of the executive directors used ordinary shares as collateral for any loans
3. The salary and shares held beneficially include shares awarded to deliver the executive directors' salary shares
4. 36.8 per cent of the 2020-22 LTIP award is no longer subject to performance measures due to achievement against 2020-22 TSR and strategic measures
5. As Bill and Andy are both UK taxpayers: zero per cent tax is assumed to apply to Sharesave (as Sharesave is a UK tax qualified share plan) and 47 per cent tax is assumed to apply to other unvested share awards (marginal combined PAYE rate of income tax at 45 per cent and employee National Insurance contributions at 2 per cent) - rates may change
E. Share price information
The middle market price of an ordinary share at the close of business on 30 June 2023 was 683.0 pence. The share price range during the first half of 2023 was 591.8 pence to 790.8 pence (based on the closing middle market prices).
F. Substantial shareholders
The Company and its shareholders have been granted partial exemption from the disclosure requirements under Part XV of the Securities and Futures Ordinance (SFO). As a result of this exemption, shareholders no longer have an obligation under Part XV of the SFO (other than Divisions 5, 11 and 12 thereof) to notify the Company of substantial shareholding interests, and the Company is no longer required to maintain a register of interests of substantial shareholders under section 336 of the SFO. The Company is, however, required to file with The Stock Exchange of Hong Kong Limited any disclosure of interests made in the UK.
G. Code for Financial Reporting Disclosures
The UK Finance Code for Financial Reporting Disclosure sets out five disclosure principles together with supporting guidance. The principles are that UK banks will: provide high-quality, meaningful and decision useful disclosures; review and enhance their financial instrument disclosures for key areas of interest; assess the applicability and relevance of good practice recommendations to their disclosures, acknowledging the importance of such guidance; seek to enhance the comparability of financial statement disclosures across the UK banking sector; and clearly differentiate in their annual reports between information that is audited and information that is unaudited.
The Group's interim financial statements for the six months ended 30 June 2023 have been prepared in accordance with the Code's principles.
H. Employees
The details regarding our remuneration policies, bonus schemes and training schemes have not materially changed from our 2022 Annual Report and Accounts and we will be updating on these in our 2023 Annual Report.
I. Employee headcount
The following table summarises the number of employees within the Group:
Business1 | Supportservices2 | Total3,4 | |
At 30 June 2023 | 30,478 | 55,515 | 85,993 |
At 31 December 2022 | 30,619 | 52,647 | 83,266 |
1 Business is defined as employees directly under the remit of the businesses
2 Support services include employees who support businesses' operations or investments where costs are fully recharged to the businesses. Increase in support services in H1 2023 is mainly due to increase in business demand for investment resources and transfer of approximately 500 employees from CCIB business
3 Excludes 529 employees (headcount) from Digital Ventures entities (Autumn, TASConnect, Zodia Markets, Zodia Custody, Appro, Solv India, SolvKenya, Letsbloom, Myzoi and Tawi)
4 Includes employees operating in discontinued/restructured businesses
Page 131
Shareholder information
Dividend and interest payment dates
Ordinary Shares | 2023 interim dividend (cash only) |
Results and dividend announced | 28 July 2023 |
Ex-Dividend date | 10 (UK) 9 (HK) August 2023 |
Record date | 11 August 2023 |
Last date to amend currency election instructions for cash dividend* | 18 September 2023 |
Dividend payment date | 13 October 2023 |
* in either US dollars, sterling, or Hong Kong dollars
2023 final dividend (provisional only) | |
Results and dividend announcement date | 20 February 2024 |
Preference shares | Second half-yearly dividend |
7 3/8 per cent Non-Cumulative Irredeemable preference shares of £1 each | 2 October 2023 |
8 ¼ per cent Non-Cumulative Irredeemable preference shares of £1 each | 2 October 2023 |
6.409 per cent Non-Cumulative preference shares of $5 each | 31 July 2023 and 30 October 2023 |
7.014 per cent Non-Cumulative preference shares of $5 each | 31 July 2023 |
Previous dividend payments (unadjusted for the impact of the 2015/2010/2008 Rights Issues)
Dividend and financial year | Payment date | Dividend per ordinary share | Cost of one new ordinary share under share dividend scheme |
Interim 2008 | 9 October 2008 | 25.67c/13.96133p/HK$1.995046 | £14.00/$26.0148 |
Final 2008 | 15 May 2009 | 42.32c/28.4693p/HK$3.279597 | £8.342/$11.7405 |
Interim 2009 | 8 October 2009 | 21.23c/13.25177p/HK$1.645304 | £13.876/$22.799 |
Final 2009 | 13 May 2010 | 44.80c/29.54233p/HK$3.478306 | £17.351/$26.252 |
Interim 2010 | 5 October 2010 | 23.35c/14.71618p/HK$1.811274/INR0.9841241 | £17.394/$27.190 |
Final 2010 | 11 May 2011 | 46.65c/28.272513p/HK$3.623404/INR1.99751701 | £15.994/$25.649 |
Interim 2011 | 7 October 2011 | 24.75c/15.81958125p/HK$1.928909813/INR1.137971251 | £14.127/$23.140 |
Final 2011 | 15 May 2012 | 51.25c/31.63032125p/HK$3.9776083375/INR2.66670151 | £15.723/$24.634 |
Interim 2012 | 11 October 2012 | 27.23c/16.799630190p/HK$2.111362463/INR1.3498039501 | £13.417/$21.041 |
Final 2012 | 14 May 2013 | 56.77c/36.5649893p/HK$4.4048756997/INR2.9762835751 | £17.40/$26.28792 |
Interim 2013 | 17 October 2013 | 28.80c/17.8880256p/HK$2.233204992/INR1.68131 | £15.362/$24.07379 |
Final 2013 | 14 May 2014 | 57.20c/33.9211444p/HK$4.43464736/INR3.3546261 | £11.949/$19.815 |
Interim 2014 | 20 October 2014 | 28.80c/17.891107200p/HK$2.2340016000/INR1.6718425601 | £12.151/$20.207 |
Final 2014 | 14 May 2015 | 57.20c/37.16485p/HK$4.43329/INR3.5140591 | £9.797/$14.374 |
Interim 2015 | 19 October 2015 | 14.40c/9.3979152p/HK$1.115985456/INR0.861393721 | £8.5226/$13.34383 |
Final 2015 | No dividend declared | N/A | N/A |
Interim 2016 | No dividend declared | N/A | N/A |
Final 2016 | No dividend declared | N/A | N/A |
Interim 2017 | No dividend declared | N/A | N/A |
Final 2017 | 17 May 2018 | 11.00c/7.88046p/HK$0.86293/INR0.6536433401 | £7.7600/$10.83451 |
Interim 2018 | 22 October 2018 | 6.00c/4.59747p/HK$0.46978/INR0.36961751 | £6.7104/$8.51952 |
Final 2018 | 16 May 2019 | 15.00c/11.569905p/HK$1.176260/INR0.9576916501 | N/A |
Interim 2019 | 21 October 2019 | 7.00c/5.676776p/HK$0.548723/INR0.4250286001 | N/A |
Final 2019 | Dividend withdrawn | N/A | N/A |
Interim 2020 | No dividend declared | N/A | N/A |
Final 2020 | 25 February 2021 | 9.00c/6.472413p/HK$0.698501 | N/A |
Interim 2021 | 22 October 2021 | 3.00c/2.204877p/HK$0.233592 | N/A |
Final 2021 | 12 May 2022 | 9.00c/6.894144p/HK$0.705772 | N/A |
Interim 2022 | 14 October 2022 | 4.00c/3.675912/HK$0.313887 | N/A |
Final 2022 | 11 May 2023 | 14.00c/11.249168p/HK$1.09803 | N/A |
1 The INR dividend was per Indian Depository Receipt. In March 2020, the Group announced the termination of the IDR programme. The IDR programme was formally delisted from the BSE Limited (formerly the Bombay Stock Exchange) and National Stock Exchange of India Limited with effect from 22 July 2020.
Further details regarding dividends can be found on our website at sc.com/shareholders
Page 132
ShareCare
ShareCare is available to shareholders on the Company's UK register who have a UK address and bank account. It allows you to hold your Standard Chartered PLC shares in a nominee account. Your shares will be held in electronic form so you will no longer have to worry about keeping your share certificates safe. If you join ShareCare, you will still be invited to attend the Company's AGM and you will receive any dividend paid at the same time as everyone else. ShareCare is free to join and there are no annual fees to pay. If you would like to receive more information, please visit our website at sc.com/shareholders or contact the shareholder helpline on 0370 702 0138.
Donating shares to ShareGift
Shareholders who have a small number of shares often find it uneconomical to sell them. An alternative is to consider donating them to the charity ShareGift (registered charity 1052686), which collects donations of unwanted shares until there are enough to sell and uses the proceeds to support UK charities. There is no implication for capital gains tax (no gain or loss) when you donate shares to charity, and UK taxpayers may be able to claim income tax relief on the value of their donation. Further information can be obtained from the Company's registrars or from ShareGift on 020 7930 3737 or from sharegift.org.
Bankers' Automated Clearing System (BACS)
Dividends can be paid straight into your bank or building society account. Please register online at investorcentre.co.uk or contact our registrar for a mandate form.
Registrars and shareholder enquiries
If you have any enquiries relating to your shareholding and you hold your shares on the UK register, please contact our registrar at investorcentre.co.uk and click on the "ASK A QUESTION" link at the bottom of the page. Alternatively, please contact Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol, BS99 6ZZ or call the shareholder helpline number on 0370 702 0138.
If you hold your shares on the Hong Kong branch register and you have enquiries, please contact Computershare Hong Kong Investor Services Limited, 17M Floor, Hopewell Centre, 183 Queen's Road East, Wan Chai, Hong Kong. You can check your shareholding at: computershare.com/hk/investors.
Chinese translation
If you would like a Chinese version of this Half Year Report, please contact: Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen's Road East, Wan Chai, Hong Kong.
,:18317M
Shareholders on the Hong Kong branch register who have asked to receive corporate communications in either Chinese or English can change this election by contacting Computershare. If there is a dispute between any translation and the English version of this Half Year Report, the English text shall prevail.
Electronic communications
If you hold your shares on the UK register and in future you would like to receive the Half Year Report electronically rather than by post, please register online at: investorcentre.co.uk. Then click on 'register' and follow the instructions. You will need to have your Shareholder or ShareCare reference number to hand. You can find this on your share certificate or ShareCare statement. Once you have registered and confirmed your email communication preference, you will receive future notifications via email enabling you to submit your proxy vote online. In addition, as a member of Investor Centre, you will be able to manage your shareholding online and submit dividend elections electronically and change your bank mandate or address information.
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Important notices
Forward-looking statements
The information included in this document may contain 'forward-looking statements' based upon current expectations or beliefs as well as statements formulated with assumptions about future events. Forward-looking statements include, without limitation, projections, estimates, commitments, plans, approaches, ambitions and targets (including, without limitation, ESG commitments, ambitions and targets). Forward-looking statements often use words such as 'may', 'could', 'will', 'expect', 'intend', 'estimate', 'anticipate', 'believe', 'plan', 'seek', 'aim', 'continue' or other words of similar meaning. Forward-looking statements may also (or additionally) be identified by the fact that they do not relate only to historical or current facts. By their very nature, forward-looking statements are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and the Group's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. Readers should not place reliance on, and are cautioned about relying on, any forward-looking statements. There are several factors which could cause actual results to differ materially from those expressed or implied in forward-looking statements. The factors that could cause actual results to differ materially from those described in the forward-looking statements include (but are not limited to): changes in global, political, economic, business, competitive and market forces or conditions, or in future exchange and interest rates; changes in environmental, geopolitical, social or physical risks; legal, regulatory and policy developments, including regulatory measures addressing climate change and broader sustainability-related issues; the development of standards and interpretations, including evolving requirements and practices in Environmental, Social and Governance reporting; the ability of the Group, together with governments and other stakeholders to measure, manage, and mitigate the impacts of climate change and broader sustainability-related issues effectively; risks arising out of health crises and pandemics; risks of cyber-attacks, data, information or security breaches or technology failures involving the Group; changes in tax rates, future business combinations or dispositions; and other factors specific to the Group, including those identified in financial statements of the Group. Any forward-looking statements contained in this document are based on past or current trends and/or activities of the Group and should not be taken as a representation that such trends or activities will continue in the future. No statement in this document is intended to be, nor should be interpreted as, a profit forecast or to imply that the earnings of the Group for the current year or future years will necessarily match or exceed the historical or published earnings of the Group. Except as required by any applicable laws or regulations, the Group expressly disclaims any obligation to revise or update any forward-looking statement contained within this document, regardless of whether those statements are affected as a result of new information, future events or otherwise. Please refer to the Annual Report, this document and the financial statements of the Group for a discussion of certain of the risks and factors that could adversely impact the Group's actual results, and its plans and objectives, to differ materially from those expressed or implied in any forward-looking statements.
Financial instruments
Nothing in this document shall constitute, in any jurisdiction, an offer or solicitation to sell or purchase any securities or other financial instruments, nor shall it constitute a recommendation or advice in respect of any securities or other financial instruments or any other matter.
Caution regarding climate and environment related information
Some of the climate and environment related information in this document is subject to certain limitations, and therefore the reader should treat the information provided, as well as conclusions, projections and assumptions drawn from such information, with caution. The information may be limited due to a number of factors, which include (but are not limited to): a lack of reliable data; a lack of standardisation of data; and future uncertainty. The information includes externally sourced data that may not have been verified. Furthermore, some of the data, models and methodologies used to create the information is subject to adjustment which is beyond our control, and the information is subject to change without notice. This disclaimer does not apply to the Group's condensed consolidated interim financial statements and note as set out in Note 1 - Statement of compliance.
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Glossary
Absolute financed emissions
A measurement of our attributed share of our clients greenhouse gas emissions.
AT1 or Additional Tier 1 capital
Additional Tier 1 capital consists of instruments other than Common Equity Tier 1 that meet the Capital Requirements Regulation (as it forms part of UK domestic law) criteria for inclusion in Tier 1 capital.
Additional value adjustment
See Prudent valuation adjustment.
Advanced Internal Rating Based (AIRB) approach
The AIRB approach under the Basel framework is used to calculate credit risk capital based on the Group's own estimates of prudential parameters.
Alternative performance measures
A financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework.
ASEAN
Association of South East Asian Nations (ASEAN) which includes the Group's operations in Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam.
AUM or Assets under management
Total market value of assets such as deposits, securities and funds held by the Group on behalf of the clients.
Basel II
The capital adequacy framework issued by the Basel Committee on Banking Supervision (BCBS) in June 2006 in the form of the International Convergence of Capital Measurement and Capital Standards.
Basel III
The global regulatory standards on bank capital adequacy and liquidity, originally issued in December 2010 and updated in June 2011. In December 2017, the BCBS published a document setting out the finalisation of the Basel III framework. The latest requirements issued in December 2017 were implemented from 2022.
BCBS or Basel Committee on Banking Supervision
A forum on banking supervisory matters which develops global supervisory standards for the banking industry. Its members are officials from 45 central banks or prudential supervisors from 27 countries and territories.
Basic earnings per share (EPS)
Represents earnings divided by the basic weighted average number of shares.
Basis point (bps)
One hundredth of a per cent (0.01 per cent); 100 basis points is 1 per cent.
CRD or Capital Requirements Directive
An EU capital adequacy legislative package largely implemented or onshored into UK law. The package comprises the Capital Requirements Directive and the Capital Requirements Regulation (CRR) and implements the Basel III framework together with transitional arrangements for some of its requirements. CRD IV came into force on 1 January 2014. The EU CRR II and CRD V amending the existing package came into force in June 2019 with most changes starting to apply from 28 June 2021. Only those parts of the EU CRR II that applied on or before 31 December 2020, when the UK was a member of the EU, have been implemented. The PRA recently finalised the UK's version of the CRR II for implementation on 1 January 2022.
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Capital-lite income
Income derived from products with low RWA consumption or products which are non-funding in nature.
Capital resources
Sum of Tier 1 and Tier 2 capital after regulatory adjustments.
CGU or Cash-generating unit
The smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
Cash shortfall
The difference between the cash flows that are due in accordance with the contractual terms of the instrument and the cash flows that the Group expects to receive over the contractual life of the instrument.
Clawback
An amount an individual is required to pay back to the Group, which has to be returned to the Group under certain circumstances.
Commercial real estate
Includes office buildings, industrial property, medical centres, hotels, malls, retail stores, shopping centres, farm land, multi-family housing buildings, warehouses, garages, and industrial properties. Commercial real estate loans are those backed by a package of commercial real estate assets.
CET1 or Common Equity Tier 1 capital
Common Equity Tier 1 capital consists of the common shares issued by the Group and related share premium, retained earnings, accumulated other comprehensive income and other disclosed reserves, eligible non-controlling interests and regulatory adjustments required in the calculation of Common Equity Tier 1.
CET1 ratio
A measure of the Group's CET1 capital as a percentage of risk-weighted assets.
Contractual maturity
Contractual maturity refers to the final payment date of a loan or other financial instrument, at which point all the remaining outstanding principal and interest is due to be paid.
Countercyclical capital buffer
The countercyclical capital buffer (CCyB) is part of a set of macroprudential instruments, designed to help counter procyclicality in the financial system. CCyB as defined in the Basel III standard provides for an additional capital requirement of up to 2.5 per cent of risk-weighted assets in a given jurisdiction. The Bank of England's Financial Policy Committee has the power to set the CCyB rate for the United Kingdom. Each bank must calculate its 'institution-specific' CCyB rate, defined as the weighted average of the CCyB rates in effect across the jurisdictions in which it has credit exposures. The institution-specific CCyB rate is then applied to a bank's total risk-weighted assets.
Counterparty credit risk
The risk that a counterparty defaults before satisfying its obligations under a derivative, a securities financing transaction (SFT) or a similar contract.
CCF or Credit conversion factor
An estimate of the amount the Group expects a customer to have drawn further on a facility limit at the point of default. This is either prescribed by CRR or modelled by the bank.
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CDS or Credit default swaps
A credit derivative is an arrangement whereby the credit risk of an asset (the reference asset) is transferred from the buyer to the seller of protection. A credit default swap is a contract where the protection seller receives premium or interest-related payments in return for contracting to make payments to the protection buyer upon a defined credit event. Credit events normally include bankruptcy, payment default on a reference asset or assets, or downgrades by a rating agency.
Credit institutions
An institution whose business is to receive deposits or other repayable funds from the public and to grant credits for its own account.
Credit risk mitigation
Credit risk mitigation is a process to mitigate potential credit losses from any given account, customer or portfolio by using a range of tools such as collateral, netting agreements, credit insurance, credit derivatives and guarantees.
CVA or Credit valuation adjustments
An adjustment to the fair value of derivative contracts that reflects the possibility that the counterparty may default such that the Group would not receive the full market value of the contracts.
Customer accounts
Money deposited by all individuals and companies which are not credit institutions including securities sold under repurchase agreement (see repo/reverse repo). Such funds are recorded as liabilities in the Group's balance sheet under customer accounts.
Days past due
One or more days that interest and/or principal payments are overdue based on the contractual terms.
DVA or Debit valuation adjustment
An adjustment to the fair value of derivative contracts that reflects the possibility that the Group may default and not pay the full market value of contracts.
Debt securities
Debt securities are assets on the Group's balance sheet and represent certificates of indebtedness of credit institutions, public bodies or other undertakings excluding those issued by central banks.
Debt securities in issue
Debt securities in issue are transferable certificates of indebtedness of the Group to the bearer of the certificate. These are liabilities of the Group and include certificates of deposits.
Deferred tax asset
Income taxes recoverable in future periods in respect of deductible temporary differences between the accounting and tax base of an asset or liability that will result in tax deductible amounts in future periods, the carry-forward of tax losses or the carry-forward of unused tax credits.
Deferred tax liability
Income taxes payable in future periods in respect of taxable temporary differences between the accounting and tax base of an asset or liability that will result in taxable amounts in future periods.
Default
Financial assets in default represent those that are at least 90 days past due in respect of principal or interest and/or where the assets are otherwise considered to be unlikely to pay, including those that are credit-impaired.
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Defined benefit obligation
The present value of expected future payments required to settle the obligations of a defined benefit scheme resulting from employee service.
Defined benefit scheme
Pension or other post-retirement benefit scheme other than a defined contribution scheme.
Defined contribution scheme
A pension or other post-retirement benefit scheme where the employer's obligation is limited to its contributions to the fund.
Delinquency
A debt or other financial obligation is considered to be in a state of delinquency when payments are overdue. Loans and advances are considered to be delinquent when consecutive payments are missed. Also known as arrears.
Deposits by banks
Deposits by banks comprise amounts owed to other domestic or foreign credit institutions by the Group including securities sold under repo.
Diluted earnings per share (EPS)
Represents earnings divided by the weighted average number of shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares.
Dividend per share
Represents the entitlement of each shareholder in the share of the profits of the Company. Calculated in the lowest unit of currency in which the shares are quoted.
Early alert, purely and non-purely precautionary
A borrower's account which exhibits risks or potential weaknesses of a material nature requiring closer monitoring, supervision, or attention by management. Weaknesses in such a borrower's account, if left uncorrected, could result in deterioration of repayment prospects and the likelihood of being downgraded to credit grade 12 or worse. When an account is on early alert, it is classified as either purely precautionary or non-purely precautionary. A purely precautionary account is one that exhibits early alert characteristics, but these do not present any imminent credit concern. If the symptoms present an imminent credit concern, an account will be considered for classification as non-purely precautionary.
Effective tax rate
The tax on profit/ (losses) on ordinary activities as a percentage of profit/ (loss) on ordinary activities before taxation.
Encumbered assets
On-balance sheet assets pledged or used as collateral in respect of certain of the Group's liabilities.
EU or European Union
The European Union (EU) is a political and economic union of 27 member states that are located primarily in Europe.
Eurozone
Represents the 19 EU countries that have adopted the euro as their common currency.
ECL or Expected credit loss
Represents the present value of expected cash shortfalls over the residual term of a financial asset, undrawn commitment or financial guarantee.
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Expected loss
The Group measure of anticipated loss for exposures captured under an internal ratings-based credit risk approach for capital adequacy calculations. It is measured as the Group-modelled view of anticipated loss based on probability of default, loss given default and exposure at default, with a one-year time horizon.
Exposures
Credit exposures represent the amount lent to a customer, together with any undrawn commitments.
EAD or Exposure at default
The estimation of the extent to which the Group may be exposed to a customer or counterparty in the event of, and at the time of, that counterparty's default. At default, the customer may not have drawn the loan fully or may already have repaid some of the principal, so that exposure is typically less than the approved loan limit.
ECAI or External Credit Assessment Institution
External credit ratings are used to assign risk-weights under the standardised approach for sovereigns, corporates and institutions. The external ratings are from credit rating agencies that are registered or certified in accordance with the credit rating agencies regulation or from a central bank issuing credit ratings which is exempt from the application of this regulation.
ESG
Environmental, Social and Governance.
FCA or Financial Conduct Authority
The Financial Conduct Authority regulates the conduct of financial firms and, for certain firms, prudential standards in the UK. It has a strategic objective to ensure that the relevant markets function well.
Forbearance
Forbearance takes place when a concession is made to the contractual terms of a loan in response to an obligor's financial difficulties. The Group classifies such modified loans as either 'Forborne - not impaired loans' or 'Loans subject to forbearance - impaired'. Once a loan is categorised as either of these, it will remain in one of these two categories until the loan matures or satisfies the 'curing' conditions described in Note 8 to the financial statements.
Forborne - not impaired loans
Loans where the contractual terms have been modified due to financial difficulties of the borrower, but the loan is not considered to be impaired. See 'Forbearance'.
Funded/unfunded exposures
Exposures where the notional amount of the transaction is funded or unfunded. Represents exposures where a commitment to provide future funding is made but funds have been released/ not released.
FVA or Funding valuation adjustments
FVA reflects an adjustment to fair value in respect of derivative contracts that reflects the funding costs that the market participant would incorporate when determining an exit price.
G-SIBs or Global Systemically Important Banks
Global banking financial institutions whose size, complexity and systemic interconnectedness mean that their distress or failure would cause significant disruption to the wider financial system and economic activity. The list of G-SIBs is assessed under a framework established by the FSB and the BCBS. In the UK, the G-SIB framework is implemented via the CRD and G-SIBs are referred to as Global Systemically Important Institutions (G-SIIs).
G-SIB buffer
A CET1 capital buffer which results from designation as a G-SIB. The G-SIB buffer is between 1 per cent and 3.5 per cent, depending on the allocation to one of five buckets based on the annual scoring. In the UK, the G-SIB buffer is implemented via the CRD as Global Systemically Important Institutions (G-SII) buffer requirement.
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Green and Sustainable Product Framework
Sets out underlying eligible qualifying themes and activities that may be considered ESG .This has been developed with the support of external experts, has been informed by industry and supervisory principles and standards such as the Green Bond Principles and EU Taxonomy for sustainable activities.
Hong Kong regional hub
Standard Chartered Bank (Hong Kong) Limited and its subsidiaries including the primary operating entities in China, Korea and Taiwan. Standard Chartered PLC is the ultimate parent company of Standard Chartered Bank (Hong Kong) Limited.
Interest rate risk
The risk of an adverse impact on the Group's income statement due to changes in interest rates.
IRB or internal ratings-based approach
Risk-weighting methodology in accordance with the Basel Capital Accord where capital requirements are based on a firm's own estimates of prudential parameters.
Internal model approach
The approach used to calculate market risk capital and RWA with an internal market risk model approved by the PRA under the terms of CRD/CRR.
IAS or International Accounting Standard
A standard that forms part of the International Financial Reporting Standards framework.
IASB or International Accounting Standards Board
An independent standard-setting body responsible for the development and publication of IFRS, and approving interpretations of IFRS standards that are recommended by the IFRS Interpretations Committee (IFRIC).
IFRS or International Financial Reporting Standards
A set of international accounting standards developed and issued by the International Accounting Standards Board, consisting of principles-based guidance contained within IFRSs and IASs. All companies that have issued publicly traded securities in the EU are required to prepare annual and interim reports under IFRS and IAS standards that have been endorsed by the EU.
IFRIC
The IFRS Interpretations Committee supports the IASB in providing authoritative guidance on the accounting treatment of issues not specifically dealt with by existing IFRSs and IASs.
Investment grade
A debt security, treasury bill or similar instrument with a credit rating measured by external agencies of AAA to BBB.
Leverage ratio
A ratio introduced under CRD IV that compares Tier 1 capital to total exposures, including certain exposures held off-balance sheet as adjusted by stipulated credit conversion factors. Intended to be a simple, non-risk-based backstop measure.
Liquidation portfolio
A portfolio of assets which is beyond our current risk appetite metrics and is held for liquidation.
LCR or Liquidity coverage ratio
The ratio of the stock of high-quality liquid assets to expected net cash outflows over the following 30 days. High-quality liquid assets should be unencumbered, liquid in markets during a time of stress and, ideally, be central bank eligible.
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Loan exposure
Loans and advances to customers reported on the balance sheet held at amortised cost or FVOCI, non-cancellable credit commitments and cancellable credit commitments for credit cards and overdraft facilities.
Loans and advances to customers
This represents lending made under bilateral agreements with customers entered into in the normal course of business and is based on the legal form of the instrument.
Loans and advances to banks
Amounts loaned to credit institutions including securities bought under Reverse repo.
LTV or loan-to-value ratio
A calculation which expresses the amount of a first mortgage lien as a percentage of the total appraised value of real property. The loan-to-value ratio is used in determining the appropriate level of risk for the loan and therefore the correct price of the loan to the borrower.
Loans past due
Loans on which payments have been due for up to a maximum of 90 days including those on which partial payments are being made.
Loans subject to forbearance - impaired
Loans where the terms have been renegotiated on terms not consistent with current market levels due to financial difficulties of the borrower. Loans in this category are necessarily impaired. See 'Forbearance'.
Loss rate
Uses an adjusted gross charge-off rate, developed using monthly write-off and recoveries over the preceding 12 months and total outstanding balances.
LGD or Loss given default
The percentage of an exposure that a lender expects to lose in the event of obligor default.
Low returning clients
See 'Perennial sub-optimal clients'.
Malus
An arrangement that permits the Group to prevent vesting of all or part of the amount of an unvested variable remuneration award, due to a specific crystallised risk, behaviour, conduct or adverse performance outcome.
Master netting agreement
An agreement between two counterparties that have multiple derivative contracts with each other that provides for the net settlement of all contracts through a single payment, in a single currency, in the event of default on, or termination of, any one contract.
Mezzanine capital
Financing that combines debt and equity characteristics. For example, a loan that also confers some profit participation to the lender.
MREL or minimum requirement for own funds and eligible liabilities
A requirement under the Bank Recovery and Resolution Directive for EU resolution authorities to set a minimum requirement for own funds and eligible liabilities for banks, implementing the FSB's Total Loss Absorbing Capacity (TLAC) standard. MREL is intended to ensure that there is sufficient equity and specific types of liabilities to facilitate an orderly resolution that minimises any impact on financial stability and ensures the continuity of critical functions and avoids exposing taxpayers to loss.
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Net asset value (NAV) per share
Ratio of net assets (total assets less total liabilities) to the number of ordinary shares outstanding at the end of a reporting period.
Net exposure
The aggregate of loans and advances to customers/loans and advances to banks after impairment provisions, restricted balances with central banks, derivatives (net of master netting agreements), investment debt and equity securities, and letters of credit and guarantees.
Net zero
The commitment to reaching net zero carbon emissions from our operations by 2025 and from our financing by 2050.
NII or Net interest income
The difference between interest received on assets and interest paid on liabilities.
NSFR or Net stable funding ratio
The ratio of available stable funding to required stable funding over a one-year time horizon, assuming a stressed scenario. It is a longer-term liquidity measure designed to restrain the amount of wholesale borrowing and encourage stable funding over a one-year time horizon.
NPLs or non-performing loans
An NPL is any loan that is more than 90 days past due or is otherwise individually impaired. This excludes Retail loans renegotiated at or after 90 days past due, but on which there has been no default in interest or principal payments for more than 180 days since renegotiation, and against which no loss of principal is expected.
Non-linearity
Non-linearity of expected credit loss occurs when the average of expected credit loss for a portfolio is higher than the base case (median) due to the fact that bad economic environment could have a larger impact on ECL calculation than good economic environment.
Normalised items
See 'Underlying/Normalised'.
Operating expenses
Staff and premises costs, general and administrative expenses, depreciation and amortisation. Underlying operating expenses exclude expenses as described in 'Underlying earnings'. A reconciliation between underlying and statutory earnings is contained in Note 2 to the financial statements.
Operating income or operating profit
Net interest, net fee and net trading income, as well as other operating income. Underlying operating income represents the income line items above, on an underlying basis. See 'Underlying earnings'.
OTC or Over-the-counter derivatives
A bilateral transaction (e.g. derivatives) that is not exchange traded and that is valued using valuation models.
OCA or Own credit adjustment
An adjustment to the Group's issued debt designated at fair value through profit or loss that reflects the possibility that the Group may default and not pay the full market value of the contracts.
Perennial sub-optimal clients
Clients that have returned below 3% return on risk-weighted assets for the last three years
Physical risks
The risk of increased extreme weather events including flood, drought and sea level rise.
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Pillar 1
The first pillar of the three pillars of the Basel framework which provides the approach to calculation of the minimum capital requirements for credit, market and operational risk. Minimum capital requirements are 8 per cent of the Group's risk-weighted assets.
Pillar 2
The second pillar of the three pillars of the Basel framework which requires banks to undertake a comprehensive assessment of their risks and to determine the appropriate amounts of capital to be held against these risks where other suitable mitigants are not available.
Pillar 3
The third pillar of the three pillars of the Basel framework which aims to provide a consistent and comprehensive disclosure framework that enhances comparability between banks and further promotes improvements in risk practices.
Priority Banking
Priority Banking customers are individuals who have met certain criteria for deposits, AUM, mortgage loans or monthly payroll. Criteria varies by country.
Private equity investments
Equity securities in operating companies generally not quoted on a public exchange. Investment in private equity often involves the investment of capital in private companies. Capital for private equity investment is raised by retail or institutional investors and used to fund investment strategies such as leveraged buyouts, venture capital, growth capital, distressed investments and mezzanine capital.
PD or Probability of default
PD is an internal estimate for each borrower grade of the likelihood that an obligor will default on an obligation over a given time horizon.
Probability weighted
Obtained by considering the values the metric can assume, weighted by the probability of each value occurring.
Profit (loss) attributable to ordinary shareholders
Profit (loss) for the year after non-controlling interests and dividends declared in respect of preference shares classified as equity.
PVA or Prudent valuation adjustment
An adjustment to CET1 capital to reflect the difference between fair value and prudent value positions, where the application of prudence results in a lower absolute carrying value than recognised in the financial statements.
PRA or Prudential Regulation Authority
The Prudential Regulation Authority is the statutory body responsible for the prudential supervision of banks, building societies, credit unions, insurers and a small number of significant investment firms in the UK. The PRA is a part of the Bank of England.
Revenue-based carbon intensity
A measurement of the quantity of greenhouse gases emitted by our clients per USD of their revenue.
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Regulatory consolidation
The regulatory consolidation of Standard Chartered PLC differs from the statutory consolidation in that it includes Ascenta IV, Olea Global Pte. Ltd., Seychelles International Mercantile Banking Corporation Limited., Partior Holdings Pte. Ltd and all of the legal entities in the CurrencyFair group on a proportionate consolidation basis. These entities are considered associates for statutory accounting purposes.
The regulatory consolidation further excludes the following entities, which are consolidated for statutory accounting purposes; Audax Financial Technology Pte. Ltd, Letsbloom Pte. Ltd, SCV Research and Development Pte. Ltd., Standard Chartered Assurance Limited, Standard Chartered Isle of Man Limited, Pegasus Dealmaking Pte. Ltd., Solv Sdn. Bhd., Solvezy Technology Kenya Ltd, Solvezy Technology Ghana Ltd, Standard Chartered Botswana Education Trust, Standard Chartered Bancassurance Intermediary Limited, Standard Chartered Bank Insurance Agency (Proprietary) Limited, Standard Chartered Trading (Shanghai) Limited, Tawi Fresh Kenya Limited and, Structured and Repackaged Asset Holdings S.à r.l.
Repo/reverse repo
A repurchase agreement or repo is a short-term funding agreement, which allows a borrower to sell a financial asset, such as asset-backed securities or government bonds as collateral for cash. As part of the agreement the borrower agrees to repurchase the security at some later date, usually less than 30 days, repaying the proceeds of the loan. For the party on the other end of the transaction (buying the security and agreeing to sell in the future), it is a reverse repurchase agreement or reverse repo.
Residential mortgage
A loan to purchase a residential property which is then used as collateral to guarantee repayment of the loan. The borrower gives the lender a lien against the property, and the lender can foreclose on the property if the borrower does not repay the loan per the agreed terms. Also known as a home loan.
RoRWA or Return on risk-weighted assets
Profit before tax for year as a percentage of RWA. Profit may be statutory or underlying and is specified where used. See 'RWA' and 'Underlying earnings'.
RWA or Risk-weighted assets
A measure of a bank's assets adjusted for their associated risks, expressed as a percentage of an exposure value in accordance with the applicable standardised or IRB approach provisions.
Risks-not-in-VaR (RNIV)
A framework for identifying and quantifying marginal types of market risk that are not captured in the Value at Risk (VaR) measure for any reason, such as being a far-tail risk or the necessary historical market data not being available.
Roll rate
Uses a matrix that gives average loan migration rate from delinquency states from period to period. A matrix multiplication is then performed to generate the final PDs by delinquency bucket over different time horizons.
Scope 1 emissions
Arise from the consumption of energy from direct sources during the use of property occupied by the Group. On-site combustion of fuels such as diesel, liquefied petroleum gas and natural gas is recorded using meters or, where metering is not available, collated from fuel vendor invoices. Emissions from the combustion of fuel in Group-operated transportation devices, as well as fugitive emissions, are excluded as being immaterial.
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Scope 2 emissions
Arise from the consumption of indirect sources of energy during the use of property occupied by the Group. Energy generated off-site in the form of purchased electricity, heat, steam or cooling is collected as kilowatt hours consumed using meters or, where metering is not available, collated from vendor invoices. For leased properties we include all indirect and direct sources of energy consumed by building services (amongst other activities) within the space occupied by the Group. This can include base building services under landlord control but over which we typically hold a reasonable degree of influence. All data centre facilities with conditioning systems and hardware remaining under the operational control of the Group are included in the reporting. This does not include energy used at outsourced data centre facilities which are captured under Scope 3.
Scope 3 emissions
Occur as a consequence of the Group's activities but arising from sources not controlled by the Group. Business air travel data is collected as person kilometres travelled by seating class by employees of the Group. Data are drawn from country operations that have processes in place to gather accurate employee air travel data from travel management companies. Flights are categorised as short, medium or long haul trips. Emissions from other potential Scope 3 sources such as electricity transmission and distribution line losses are not currently accounted for on the basis that they cannot be calculated with an acceptable level of reliability or consistency. The Group does however capture Scope 3 emissions from outsourced data centres managed by third parties.
Secured (fully and partially)
A secured loan is a loan in which the borrower pledges an asset as collateral for a loan which, in the event that the borrower defaults, the Group is able to take possession of. All secured loans are considered fully secured if the fair value of the collateral is equal to or greater than the loan at the time of origination. All other secured loans are considered to be partly secured.
Securitisation
Securitisation is a process by which credit exposures are aggregated into a pool, which is used to back new securities. Under traditional securitisation transactions, assets are sold to a structured entity which then issues new securities to investors at different levels of seniority (credit tranching). This allows the credit quality of the assets to be separated from the credit rating of the originating institution and transfers risk to external investors in a way that meets their risk appetite. Under synthetic securitisation transactions, the transfer of risk is achieved by the use of credit derivatives or guarantees, and the exposures being securitised remain exposures of the originating institution.
Senior debt
Debt that takes priority over other unsecured or otherwise more 'junior' debt owed by the issuer. Senior debt has greater seniority in the issuer's capital structure than subordinated debt. In the event the issuer goes bankrupt, senior debt theoretically must be repaid before other creditors receive any payment.
SICR or Significant increase in credit risk
Assessed by comparing the risk of default of an exposure at the reporting date to the risk of default at origination (after considering the passage of time).
Solo
The solo regulatory group as defined in the Prudential Regulation Authority waiver letter dated 7 June 2023 differs from Standard Chartered Bank Company in that it includes the full consolidation of six subsidiaries, namely Standard Chartered Holdings (International) B.V., Standard Chartered MB Holdings B.V., Standard Chartered Grindlays PTY Limited, SCMB Overseas Limited, Standard Chartered Capital Management (Jersey) LLC and Cerulean Investments L.P.
Sovereign exposures
Exposures to central governments and central government departments, central banks and entities owned or guaranteed by the aforementioned. Sovereign exposures, as defined by the European Banking Authority, include only exposures to central governments.
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Stage 1
Assets have not experienced a significant increase in credit risk since origination and impairment recognised on the basis of 12 months expected credit losses.
Stage 2
Assets have experienced a significant increase in credit risk since origination and impairment is recognised on the basis of lifetime expected credit losses.
Stage 3
Assets that are in default and considered credit-impaired (non-performing loans).
Standardised approach
In relation to credit risk, a method for calculating credit risk capital requirements using External Credit Assessment Institutions (ECAI) ratings and supervisory risk weights. In relation to operational risk, a method of calculating the operational capital requirement by the application of a supervisory defined percentage charge to the gross income of eight specified business lines.
Structured note
An investment tool which pays a return linked to the value or level of a specified asset or index and sometimes offers capital protection if the value declines. Structured notes can be linked to equities, interest rates, funds, commodities and foreign currency.
Subordinated liabilities
Liabilities which, in the event of insolvency or liquidation of the issuer, are subordinated to the claims of depositors and other creditors of the issuer.
Sustainability Aspirations
A series of targets and metrics by which we aim to promote social and economic development, and deliver sustainable outcomes in the areas in which we can make the most material contribution to the delivery of the UN Sustainable Development Goals.
Sustainable Finance assets
Assets from clients whose activities are aligned with the Green and Sustainable Product Framework and/or from transactions for which the use of proceeds will be utilised directly to contribute towards eligible themes and activities set out within the Green and Sustainable Product Framework.
Sustainable Finance revenue
Revenue from clients whose activities are aligned with the Green and Sustainable Product Framework and/or from transactions for which proceeds will be utilised directly to contribute towards eligible themes and activities set out within the Green and Sustainable Product Framework and/or from approved 'labelled' transactions such as any transaction referred to as "green", "social", "sustainable", "SDG (sustainable development goal) aligned", "ESG", "transition", "COVID-19 facility" or "COVID-19 response" which have been approved by the Sustainable Finance Governance Committee.
Tier 1 capital
The sum of Common Equity Tier 1 capital and Additional Tier 1 capital.
Tier 1 capital ratio
Tier 1 capital as a percentage of risk-weighted assets.
Tier 2 capital
Tier 2 capital comprises qualifying subordinated liabilities and related share premium accounts.
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TLAC or Total loss absorbing capacity
An international standard for TLAC issued by the FSB, which requires G-SIBs to have sufficient loss-absorbing and recapitalisation capacity available in resolution, to minimise impacts on financial stability, maintain the continuity of critical functions and avoid exposing public funds to loss.
Transition risks
The risk of changes to market dynamics or sectoral economics due to governments' response to climate change.
UK bank levy
A levy that applies to certain UK banks and the UK operations of foreign banks. The levy is payable each year based on a percentage of the chargeable equities and liabilities on the Group's UK tax resident entities' balance sheets. Key exclusions from chargeable equities and liabilities include Tier 1 capital, insured or guaranteed retail deposits, repos secured on certain sovereign debt and liabilities subject to netting.
Unbiased
Not overly optimistic or pessimistic, represents information that is not slanted, weighted, emphasised, de-emphasised or otherwise manipulated to increase the probability that the financial information will be received favourably or unfavourably by users.
Unlikely to pay
Indications of unlikeliness to pay shall include placing the credit obligation on non-accrued status; the recognition of a specific credit adjustment resulting from a significant perceived decline in credit quality subsequent to the Group taking on the exposure; selling the credit obligation at a material credit-related economic loss; the Group consenting to a distressed restructuring of the credit obligation where this is likely to result in a diminished financial obligation caused by the material forgiveness, or postponement, of principal, interest or, where relevant fees; filing for the obligor's bankruptcy or a similar order in respect of an obligor's credit obligation to the Group; the obligor has sought or has been placed in bankruptcy or similar protection where this would avoid or delay repayment of a credit obligation to the Group.
VaR or Value at Risk
A quantitative measure of market risk estimating the potential loss that will not be exceeded in a set time period at a set statistical confidence level.
ViU or Value-in-Use
The present value of the future expected cash flows expected to be derived from an asset or CGU.
Write-downs
After an advance has been identified as impaired and is subject to an impairment provision, the stage may be reached whereby it is concluded that there is no realistic prospect of further recovery. Write-downs will occur when, and to the extent that, the whole or part of a debt is considered irrecoverable.
XVA
The term used to incorporate credit, debit and funding valuation adjustments to the fair value of derivative financial instruments. See 'CVA', 'DVA' and 'FVA'.
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